The time value on an option is that part of the options price (or premium) that reflectsthe time remaining on the contract before it expires.lets say want to buy a call option on abc inc. and xyz inc.both companies are currently trading out of the money. the share price for bothcompanies is $25. the strike exercise price for both companies is $40. so neither ofthe call options has any intrinsic value - its all made up of time value.theres only one difference between the abc and xyz call options that you arebuying: the abc call option expires tomorrow. the xyz call option expires in 3months.which one is more likely to climb above the $40 exercise price between now and theexpiry date? youd likely be willing to pay more for the option that has more time towork its way into a profitable position.so the longer the time to expiry, the higher the time value of the option.
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