Investor Glossary-time valueInvestor Glossary-time valueInvestor Glossary-time valueInvestor Glossary-time valueInsightful stock market charts - Click here
investor
Categories    # A B C D E F G H I J K L M N O P Q R S T U V W X Y Z

Time Value

The HTML to link to this page
 

In options trading, the time value of an option is the portion of the option premium that is above and beyond the intrinsic value of the option. The time value of a put option or call option offsets the risk involved in writing the option and compensates the writer for assuming that risk. Time value is chiefly determined by the amount of time left until the option expires -- along with the volatility and dividends of the underlying security, as well as the current risk-free interest rate (i.e. T-bill rate). Behaving in true accordance with its name, the time value of an option starts high when the option is first opened (typically the greatest amount of risk), and tends to decrease as the option's expiration date approaches. When the option expires, risk and time value are both zero. When an option is in-the-money, its intrinsic value and time value are added together to determine the option's premium. When an option is at-the-money or out-of-the-money, time value is the sole component of the option's premium.



Rate this Time Value definition...

Learn about investing with the Investor Glossary Term of the Day


Click here for insightful stock market charts. Where is the market headed? The answer may surprise you. Find out
with the exclusive & Barron's recommended charts of Chart of the Day.


Popular Terms: real GDP, inflation, phantom income, liquidity ratio, per diem, retained earnings, FICO score, Key Rate Duration, Zero Cost Collar, deferred tax, covered put, labor relations, irrevocable trust, ex-dividend date, minority interest, option premium, command economy, 1031 exchange, 1035 exchange, 401a, dividends payable, risk management, current ratio, LIBOR, balance sheet, open position, VIX, implied volatility, EBITDA, in escrow, 144a, margin rate, stock market close, quality assurance, reverse mortgage, stock split, diluted share, wholly-owned subsidiary, required rate of return, average price per share, debt service coverage, APR, annual return, ex-dividend, cancelled check, deferred revenue, FTSE, limit order, class C shares


Home | Term of the Day | Suggest a Term | Chart of the Day | Dogs of the Dow
Investor Glossary Index >>> # A B C D E F G H I J K L M N O P Q R S T U V W X Y Z A B C D E F G H I J K L M N O P Q R S T U V W X Y Z
Accounting | Banking | Bonds | Brokers | Economy | Futures | Mutual Funds | Options | Real Estate | Retirement | Stocks | Taxes | Technical Analysis
©2004-2014 Investor Glossary - All rights reserved - Terms of Use