time value

Definitions (3)
Popular Terms
1. General: Value added to a good or service by passage of time, or by virtue of it being available at the time it was desired or required.
2. Mergers and acquisitions: Difference between the market value of a firm's stock before and after it is taken over. If a firm is taken over at a stated per share price in (say) two months, the stock's current market price will show a discount over the stated price. This discount will reduce as the takeover date approaches, becoming zero on that date.
3. Options trading: Amount by which the going market value (called option premium) of an option is above the amount realized (called intrinsic value) if the option is exercised now.
In other words, time value equals option premium less its intrinsic value. Buyers pay time value because they expect the option premium to increase in future due to an anticipated change in the price of the underlying futures contract. Time value, therefore, represents the value of the chance to exercise the option over time. It declines as the option's expiry date approaches, becoming zero on that date. Also called extrinsic value. See also time value of money.

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