TIME VALUE
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Remember that an option is a right you have for a period of
time. You must pay for that right, and the amount of money you
must pay is referred to as time value, which is what the market
thinks the intrinsic value of an option will be in the future.
As time passes, the value of an option will decrease. In fact,
the time value of an option continually declines to “0” as time
passes and the option reaches the end of its life.
The time value is the most important factor that we work
with. In many cases, the options you buy will be options with
time value only—no intrinsic value.
Remember that an option is a right you have for a period of
time. You must pay for that right, and the amount of money you
must pay is referred to as time value, which is what the market
thinks the intrinsic value of an option will be in the future.
As time passes, the value of an option will decrease. In fact,
the time value of an option continually declines to “0” as time
passes and the option reaches the end of its life.
The time value is the most important factor that we work
with. In many cases, the options you buy will be options with
time value only—no intrinsic value.