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Strategies & Market Trends : Option Strategies
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To: robert b furman who wrote (1950)7/27/2018 1:43:03 PM
From: Thehammer  Read Replies (1) of 2591
 
Hi Bob.

I won't opine on the value of T but will admit that i own some in my portfolio.

Time value is the difference between the option price and Intrinsic value. Intrinsic value is the real value of an in the money option. An out of the money option has no intrinsic value, it is all time value. For example on a put option that has a exercize price of $35.00. The stock is at $33.00 and the option sells for $3.00:

Intrinsic value = $35.00 - $33.-00 = $2.00 per share
Time value = $3.00 - $2.00 = $1.00 per share.

I watch the time value of ITM options like a hawk. I generally try to avoid assignment and will roll the option if I can. Generally, the deeper ITM the option is, the less the amount of time value.

If you are looking to accumulate, the tan taking the assignment is a good idea. I generally, sell puts on stocks with much lower dividends and the premiums exceed the dividend so that helps drive my decision to keep rolling.
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