Editing Option time value (section)

==Option value==
[[Image:Option value.gif|left|frame|Option Value]]
'''Option value''' (i.e.,. price) is estimated via a predictive [[formula]] such as [[Black-Scholes formula|Black-Scholes]] or using a [[numerical method]] such as the [[Binomial options model|Binomial model]]. This price incorporates the expected probability of the option finishing "[[in-the-money]]". For an out-of-the-money option, the further in the future the expiration date—i.e. the longer the time to exercise—the higher the chance of this occurring, and thus the higher the option price; for an in-the-money option the chance of being in the money ''decreases''; however the fact that the option cannot have negative value also works in the owner's favor. The sensitivity of the option value to the amount of time to expiry is known as the option's [[Greeks (finance)#Theta|theta]]. The option value will never be lower than its '''IV'''.

As seen on the graph, the full call option value ('''IV + TV'''), at a given time '''''t''''', is the red line.<ref>Note that the X axis is ''not'' time&nbsp;— the graph represents the relationship between price and value ''at a particular time''. With more time left to expiration, the red curve would be higher; the closer to expiration, the more it would approach the blue intrinsic value line.</ref>