What is Time Value of Option

Time value of option refers to the difference between the premium paid for the option and intrinsic value of option, where intrinsic value of option refers to the amount which an option holder will get if he or she exercise the option today. The longer the option the more the time value of option, and as the time to expiration gets closer the time value of option begins to decline reaching 0 on the day of expiration of the option.

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