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  "id": "option-premium-intrinsic-time-value",
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  "collection": "defi",
  "title": "Option premiums: intrinsic value, time value and the break-even price",
  "description": "Break an option price into current exercise value and extra premium, then distinguish that price from the buyer’s eventual profit.",
  "aliases": [
    "option premium intrinsic time value crypto",
    "intrinsic value versus time value"
  ],
  "dates": {
    "published": "2026-10-02",
    "modified": "2026-10-02",
    "verified": "2026-10-02T19:18:00.092Z",
    "dataAsOf": "2026-10-02"
  },
  "authorship": {
    "publisher": "Degrees of Satoshi editorial project",
    "process": "AI-assisted research and drafting with a separate automated source-verification pass; no external expert or named human review is implied."
  },
  "quickAnswer": {
    "text": "An option premium is its purchase price. In the standard introductory decomposition, intrinsic value is the favorable difference between underlying and strike, floored at zero; time or extrinsic value is the remaining premium. An out-of-the-money option can therefore have a positive price before expiry despite having no intrinsic value.",
    "claimId": "option-premium-intrinsic-time-value-quick-answer",
    "sourceIds": [
      "x425-defi-oic-pricing",
      "x425-defi-oic-options"
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  },
  "keyFacts": [
    {
      "label": "Call intrinsic",
      "value": "For one unit, max(underlying price − strike, 0).",
      "sourceIds": [
        "x425-defi-oic-pricing"
      ],
      "id": "call-intrinsic",
      "claimId": "option-premium-intrinsic-time-value-fact-call-intrinsic"
    },
    {
      "label": "Put intrinsic",
      "value": "For one unit, max(strike − underlying price, 0).",
      "sourceIds": [
        "x425-defi-oic-pricing"
      ],
      "id": "put-intrinsic",
      "claimId": "option-premium-intrinsic-time-value-fact-put-intrinsic"
    },
    {
      "label": "Extra premium",
      "value": "Time value is premium above intrinsic value in this decomposition.",
      "sourceIds": [
        "x425-defi-oic-pricing"
      ],
      "id": "extra-premium",
      "claimId": "option-premium-intrinsic-time-value-fact-extra-premium"
    }
  ],
  "prerequisites": [
    "crypto-call-put-options"
  ],
  "sections": [
    {
      "id": "example",
      "heading": "Account for both components",
      "sourceIds": [
        "x425-defi-oic-pricing"
      ],
      "paragraphs": [
        "A hypothetical call with underlying at 108, strike 100 and premium 13 has 8 of intrinsic value and 5 of time value per unit. Paying 13 does not give the buyer an immediate profit of 8: the buyer paid for both components.",
        "An otherwise comparable out-of-the-money call can still trade for a positive premium because future outcomes remain uncertain."
      ]
    },
    {
      "id": "drivers",
      "heading": "Time value responds to more than the clock",
      "sourceIds": [
        "x425-defi-oic-pricing"
      ],
      "paragraphs": [
        "Remaining time and implied volatility affect the extra premium, alongside the other pricing inputs. Time decay is not a promise that the entire option price falls each day: an underlying move or volatility change can outweigh it."
      ]
    },
    {
      "id": "units",
      "heading": "Apply the decomposition in compatible units",
      "sourceIds": [
        "x425-defi-deribit-inverse",
        "x425-defi-oic-pricing"
      ],
      "paragraphs": [
        "Contract multipliers, exercise restrictions and settlement conventions complicate a screen-level comparison. Deribit inverse option premiums are quoted in the base currency while strikes are in dollars. Convert consistently before comparing a dollar intrinsic value with a coin-denominated premium. The introductory arithmetic is not a universal pricing model or immediate exercise opportunity."
      ]
    }
  ],
  "faq": [
    {
      "question": "Does zero intrinsic value mean an option is free?",
      "answer": "No. Before expiry, an out-of-the-money option may still command time value.",
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      "statement": "An option premium is its purchase price. In the standard introductory decomposition, intrinsic value is the favorable difference between underlying and strike, floored at zero; time or extrinsic value is the remaining premium. An out-of-the-money option can therefore have a positive price before expiry despite having no intrinsic value.",
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          "locator": "Intrinsic value; Time value; Premium inputs"
        },
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          "sourceId": "source-b64d9dc1fc29e2b8",
          "locator": "Calls; Puts; Premium"
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      ],
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        "reviewer": "Independent automated verification — Codex root, separate from the DeFi drafting agent",
        "notes": [
          "Checked OIC introductory intrinsic/extrinsic decomposition;108−100=8 and13−8=5. Currency and exercise limitations explicitly preserved."
        ]
      }
    },
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      "statement": "Call intrinsic: For one unit, max(underlying price − strike, 0).",
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        "notes": [
          "Checked OIC introductory intrinsic/extrinsic decomposition;108−100=8 and13−8=5. Currency and exercise limitations explicitly preserved."
        ]
      }
    },
    {
      "id": "option-premium-intrinsic-time-value-fact-put-intrinsic",
      "articleSlug": "option-premium-intrinsic-time-value",
      "statement": "Put intrinsic: For one unit, max(strike − underlying price, 0).",
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        "notes": [
          "Checked OIC introductory intrinsic/extrinsic decomposition;108−100=8 and13−8=5. Currency and exercise limitations explicitly preserved."
        ]
      }
    },
    {
      "id": "option-premium-intrinsic-time-value-fact-extra-premium",
      "articleSlug": "option-premium-intrinsic-time-value",
      "statement": "Extra premium: Time value is premium above intrinsic value in this decomposition.",
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        "notes": [
          "Checked OIC introductory intrinsic/extrinsic decomposition;108−100=8 and13−8=5. Currency and exercise limitations explicitly preserved."
        ]
      }
    }
  ],
  "sources": [
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      "label": "Options Pricing",
      "publisher": "Options Industry Council",
      "url": "https://www.optionseducation.org/optionsoverview/options-pricing",
      "locator": "Intrinsic value; Time value; Premium inputs",
      "note": "Option price components and model inputs.",
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    {
      "id": "x425-defi-oic-options",
      "label": "What is an Option?",
      "publisher": "Options Industry Council",
      "url": "https://www.optionseducation.org/optionsoverview/what-is-an-option",
      "locator": "Calls; Puts; Premium",
      "note": "General option concepts; equity delivery conventions are not imported into crypto contracts.",
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      "locator": "Settlement process change; Settlement examples",
      "note": "Official support article retrieved through its public Help Center API; inverse settlement specifications.",
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  "related": {
    "articles": [
      "implied-volatility-options",
      "options-settlement-currency",
      "realized-unrealized-trading-pnl",
      "crypto-call-put-options"
    ],
    "dossiers": [],
    "wallets": []
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  "revisionHistory": [
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      "date": "2026-10-02",
      "kind": "published",
      "summary": "First publication after primary-source research and separate automated verification."
    }
  ],
  "citation": "Degrees of Satoshi editorial project. “Option premiums: intrinsic value, time value and the break-even price.” Published 2026-10-02; updated 2026-10-02. https://degreesofsatoshi.com/encyclopedia/option-premium-intrinsic-time-value/"
}