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Time Value

The value of an option that captures the chance of further appreciation before expiration.

The value of an option can be broken down into intrinsic value, or the value of the option if it were exercised today, and time value, or the added value of the option over and above the intrinsic value.

For example, if a stock is trading at $40 and a call with a strike price of $35 were trading for $7, the call would have a $5 intrinsic value ($40-$35) and a $2 time value ($7-$5). Time value will decay by expiration assuming the underlying security stays at the same price.

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