Options trading
Time value (extrinsic value)
Definition
Everything in the premium above intrinsic value. It pays for time and expected movement, and it shrinks toward zero by expiration.
Example
Say a stock trades at $52 and a $50 call costs $3.40. Its intrinsic value is $2, so the remaining $1.40, or $140 per contract, is time value. If the stock is still at $52 on expiration day, the call is worth only its $2 of intrinsic value, and the $140 has melted away.
Hypothetical numbers, for illustration only.
Also defined in
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