What is Time Value (TV)?
Time value is the part of an option's premium above its intrinsic value; it is what buyers pay for the chance that the option gains value before expiry. Time value = premium − intrinsic value.
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How do you calculate time value?
Intrinsic value of a call = max(spot − strike, 0); of a put = max(strike − spot, 0). Subtract it from the premium. If NIFTY is at 24,150 and the 24,000 call trades at 210, intrinsic value is 150 and time value is 60.
Out-of-the-money options have no intrinsic value, so their whole premium is time value.
Why does time value fall to zero at expiry?
At expiry there is no time left for anything to happen, so an option is worth exactly its intrinsic value. The decay is not even: it speeds up in the last few days and is fastest for at-the-money strikes. A NIFTY ATM option can lose a third of its time value on expiry day alone.
Can time value be negative?
In theory no, but on screen you will sometimes see it. Deep in-the-money options trade rarely, so their LTP can lag the index, and a stale LTP below intrinsic value shows up as negative time value. It is a liquidity artefact, not free money.
How do traders use time value?
Sellers want options with a lot of time value that is about to decay. Buyers want as little time value as possible for the delta they get. Comparing the time value of calls and puts around the spot also shows which side the market is paying up for.
How does AOC show time value?
The LTP cell shows each strike's time value in brackets, with zero or negative values in red. The header shows the total time value of in-the-money calls and puts, and the time value chart tracks TV CE against TV PE through the day.
