What is Time Value (TV)?
Time value is the part of an option's premium that is above its intrinsic value; it is what buyers pay for the chance that the option gains value before expiry. Time value = premium − intrinsic value.
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How to calculate time value
Intrinsic value of a call = max(spot − strike, 0); of a put = max(strike − spot, 0). For example, if NIFTY is at 24,150 and the 24,000 call trades at 210, intrinsic value is 150 and time value is 60.
Out-of-the-money options have no intrinsic value, so their whole premium is time value.
Time decay
Time value falls as expiry approaches (theta decay) and becomes zero at expiry, when an option is worth only its intrinsic value. Decay speeds up in the last few days, especially for at-the-money options.
The AOC option chain shows the time value of each strike next to its LTP, with zero or negative values in red.
