WHY WOULD THE TIME VALUE BE DIFFERENT FOR TWO DIFFERENT OPTIONSTHAT - ProProfs Discuss
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Why would the time value be different for two different optionsthat trade at the same price and have the same strike price?



Asked by D.Hadenr, Last updated: Oct 12, 2021

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John Smith

John Smith

John Smith
John Smith

Answered Sep 08, 2016

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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