Calculate time value

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Last updated 1:24 AM on 5/28/26
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6 Terms

1
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Time value

  • the amount an investor pays for an option above its intrinsic value

  • reflects the amount of time left until expiration

2
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The longer the time to expiration

the more time value an option will have

3
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Time value is never

a negative number. It can't be less than zero.

4
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Time value is always part of

the option's premium.

5
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formula to calculate the time value in an option's premium:

intrinsic Value + Time Value = Premium

6
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Example

An ABC 50 call is trading at 3 when the stock is at 52.

50 = strike price

3 = premium

52 = current market value

  • The option is in the money and has $2 in intrinsic value.

  • IV + TV = Premium, so 2 + ? = 3

  • The time value is $1