The time value of a European option

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The time value of an option is the extra value that an option holds other than its intrinsic value. It reflects the possibility of the option gaining intrinsic value before its expiration. As time passes, the time value of the option decreases, ceteris paribus, because there is less time for the underlying asset's price movements to work their magic on the option's returns. Moreover, an out-of-the-money option (choice A) has no intrinsic value, hence a very low or zero time value. Similarly, an at-the-money option (choice C) has less time value than an in-the-money option (choice B) due to its higher volatility and greater tendency to oscillate between being in-the-money and out-of-the-money.

The Time Value of a European Option