All lessonsLesson 9 · Step 1/6
Premium & the Greeks
What you're paying for
An option's price (the premium) = intrinsic value + time value.
Intrinsic value: real, exercise-now value. A $575 call with SPY at $580 has $5 of intrinsic value.
Time value: the extra amount buyers pay for the possibility of a bigger move. It melts away as expiration approaches — this is time decay.
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