Option Time Value

Option Time Value is the premium a rational investor would pay over its current exercise value (intrinsic value), based on the probability it will increase in value before expiry. It decays to zero at expiration, with a general rule that it will lose ⅓ of its value during the first half of its life and ⅔ in the second half. As an option moves closer to expiry, moving its price requires an increasingly larger move in the price of the underlying security.