Time Value
The portion of an option's premium beyond its intrinsic value, reflecting the probability that the option moves further in the money before expiry.
Time Value = Premium − Intrinsic Value
Time value (also called extrinsic value) is the premium a buyer pays for the possibility of a favourable move before expiration. It is highest for at-the-money options and decays as expiry approaches.
The rate of time decay accelerates in the final weeks before expiration — this non-linear decay is quantified by theta. Higher implied volatility inflates time value because a wider expected price distribution creates more optionality.