The difference between option value and intrinsic value (see Intrinsic Value), i.e.: Time Value = Option Value – (price of underlying – strike price of option), or: Time Value = Option Value – Intrinsic Value. The time value of an option is meant to describe the possibility that the option will increase in value relatively to the volatility of the underlying asset. Time value is always positive and declines exponentially over time until the expiration date when time value reaches zero.
