What is time value?

Time value is the monetary value that investors are willing to pay to own an option based on the amount of time left between the purchase date and expiry date. if you want to buy an option that has 3 months to expiry and is $5 out of the money versus an option that has 3 days to expiry and is $5 out of the money, you will place a higher value on the 3 month option. reason: there is more time for the 3 month option to turn into a profit. the option with only 3 days to expiry has a slim chance, so the time value on that 3 day option would be very low.