The extra part of the premium above intrinsic value. It decays daily until it reaches zero at expiration.
What this value is
Time Value (Extrinsic) is everything a contract's price adds on top of its intrinsic value: the price of probability, the chance that the stock moves in the contract's favor before expiration. An out-of-the-money contract is pure time value, since it has no intrinsic value yet.
What feeds it
Three sources: time left (more time = more chance), implied volatility (a bigger expected move = a more valuable chance), and how close the strike is to the price (it peaks at the money, where the two outcomes are equally likely). Theta is its scheduled daily bleed.
It is the real merchandise
The whole options market fights over it. The buyer pays it hoping it turns into intrinsic value before it evaporates, and the seller collects it betting on the evaporation. Knowing where it concentrates (at the money, mid-term expirations) and when it collapses (after events) is half the craft of trading options.
Hypothetical example
A stock at $100: a one-month call with a $100 strike priced at $3.20 is all time value. Two weeks pass with no move and the price is near $2.10. A third of the chance has melted with half the time gone, and the speed-up comes in the last two weeks.
Common mistake
Comparing two contracts by raw price: the cheaper one may carry more time value for its term and position. Compare time values relative to term and distance, not bare prices.
What feeds it and when it collapses
Term, implied volatility and closeness to the money. It collapses fastest after scheduled events: it swells before the announcement and evaporates the moment it passes, even if the stock moved your way. Traders call this a volatility crush.
Where to see it on the platform
The calculator isolates it as its own number, and the time decay curve draws it melting day by day to zero.
The calculator isolates it as its own number, and the time decay curve draws it melting day by day.
