Time is more valuable than money?

Understanding time value in options

This is an easy conceptual question on option time value, the component of an option's price that reflects the potential for favourable price movement before expiration. It appears frequently in interviews as a foundation check—interviewers want to see whether you grasp why longer-dated options command a premium even when all other factors are held constant.

The question asks you to reason about the relationship between time to expiration and the value of optionality. To answer it well, think about what "more time" means for the holder of the right to buy or sell. Consider how volatility, interest rates, and the probability of profitable exercise might interact with the length of the window in which those outcomes can occur.

• Intrinsic vs. extrinsic value decomposition
• How time window affects the range of possible terminal stock prices
• The role of implied volatility and carry costs across different maturities
• Theta decay and the non-linear decay of time value