time value investment & finance definition

In the options market, what the option buyer is willing to pay for an option by anticipating price changes prior to expiration. Options tend to decrease in value as the expiration date nears. The value of an option’s premium, or price, is comprised of time value, which reflects the length of time that an option has before expiration. It also is comprised of intrinsic value, which is the difference between the exercise price of the option and the market value of the underlying security. Time value is also called extrinsic value.