Time ValueTime Value
Understand time value, what drives it, and why it falls to zero at expiry.Time value, use kya chalata hai, aur expiry par zero kyun hoti hai, samjho.
๐ LessonLesson
Time value (extrinsic value) is everything in the premium above intrinsic value:
Time value = Premium โ Intrinsic value
It is the price of possibility โ the chance that the option becomes more valuable before expiry. Time value is higher when:
- more time is left to expiry,
- expected volatility (implied volatility) is higher,
- the strike is near the money (ATM options have the most time value).
Time value shrinks every day and speeds up near expiry. At expiry it is zero โ only intrinsic value remains. This decay is called theta and is covered in the Greeks module.
Time value (extrinsic value) premium me intrinsic value ke upar ka sab kuch hai:
Time value = Premium โ Intrinsic value
Ye sambhavna ki keemat hai โ expiry se pehle option ke aur valuable hone ka chance. Time value zyada hoti hai jab:
- expiry tak zyada time bacha ho,
- expected volatility (implied volatility) zyada ho,
- strike ATM ke paas ho (ATM options me sabse zyada time value).
Time value roz ghatti hai aur expiry ke paas tez ghatti hai. Expiry par ye zero โ sirf intrinsic value bachti hai. Is decay ko theta kehte hain, Greeks module me padhenge.
๐ Practise itPractice karo
โ ๏ธ Common mistakesCommon galtiyan
- Buying options with mostly time value and expecting to hold them for long without a move.Zyadatar time value wale options kharid kar bina move ke lambe time hold karne ki ummeed.
- Ignoring that time decay accelerates near expiry.Ignore karna ki expiry ke paas time decay tez hota hai.
- Thinking a high premium always means a better option.Ye sochna ki zyada premium matlab behtar option.
โ Quick quizQuick quiz
Score 2 out of 3 or more and the lesson is marked complete automatically.3 me se 2 ya zyada score karo, lesson apne aap complete mark ho jayega.
๐ SummarySummary
- Time value = premium โ intrinsic value.Time value = premium โ intrinsic value.
- Higher with more time, higher volatility and near-ATM strikes.Zyada time, zyada volatility aur ATM ke paas strikes par zyada.
- Falls to zero at expiry.Expiry par zero.
๐ Sources & market rules usedSources aur market rules
Last reviewed: 2 November 2026 ยท Version 1.0 ยท Prepared by the SmaartAlgos Academy team.Last reviewed: 2 November 2026 ยท Version 1.0 ยท SmaartAlgos Academy team dwara taiyaar.
Education only. SmaartAlgos is not a SEBI-registered investment adviser or research analyst. Nothing in this lesson is a recommendation to buy or sell any security. Options trading involves substantial risk of loss. Examples are hypothetical or simulated; market rules are shown with their effective dates โ always confirm the latest official circulars.
Sirf education. SmaartAlgos SEBI-registered investment adviser ya research analyst nahi hai. Is lesson me kuch bhi kisi security ko buy ya sell karne ki salah nahi hai. Options trading me bada loss ho sakta hai. Examples hypothetical ya simulated hain; market rules effective date ke saath diye gaye hain โ hamesha latest official circular confirm karo.