- time value
- The amount of money option buyer are willing to pay for an option in the anticipation that, over time, a change in the underlying futures price will cause the option to increase in value. In general, an option premium is the sum of time value and intrinsic value. Any amount by which an option premium exceeds the option's intrinsic value can be considered time value. Also referred to as extrinsic value. Chicago Board of Trade glossary————The premium of an out-of-the money option reflecting the probability that an option will move into-the-money before expiration constitutes the time value of the option. There also may be some time value in the premium of an in-the-money option, which reflects the probability of the option moving further into the money. To determine the time value of an in-the-money option, subtract the amount by which the option is in-the-money ( intrinsic value) from the total premium. The CENTER ONLINE Futures Glossary————The portion of an option's value imputed to the possibility that the price of the underlying will move in the option holder's favor during the time remaining before the option expires. American Banker Glossary————Applies to derivative products. Portion of an option price that is in excess of the intrinsic value, due to the amount of volatility in the stock; sometime referred to as premium. Time value is positively related to the length of time remaining until expiration. Bloomberg Financial Dictionary————The amount by which an option's premium exceeds its intrinsic value. Usually relative to the time remaining before the option expires. Chicago Mercantile Exchange Glossary————Used in connection with options and warrants. It is the amount by which the total value, price or premium of the option or warrant exceeds the intrinsic value of the warrant or option. For example, a call option has an exercise price of 100p and an option premium of 80p when the share price is 150p. The intrinsic value of the option is 50p (150p - 100p). The time value is the amount by which the premium exceeds 50p i.e. 30p. If an option has no intrinsic value, its premium is entirely time value. Dresdner Kleinwort Wasserstein financial glossary————That part of an option premium which reflects the length of time remaining in the option prior to expiration. The longer the time remaining until expiration, the higher the time value. Exchange Handbook Glossary————Time value is the intrinsic value subtracted from the market price. Time value represents the remaining value that has been attributed to the warrant by the market, and the fact that the market might move before the expiry date. London Stock Exchange Glossary————The portion of a warrant's price that is not accounted for by the intrinsic value. NYSE Euronext Glossary
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the fact that an amount of money to be received or paid in the future is worth less than the same amount today, and the further it is in the future, the less it is worth:• We recognise that money has a time value by discounting future cash flows at an appropriate discount rate.
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The component of an option premium which takes into consideration the time to expiry and the volatility of the underlying instrument.► See also Intrinsic Value.
Financial and business terms. 2012.
