Extrinsic Value

Together, extrinsic value and intrinsic value make up the two parts of an option’s total value. Extrinsic value, also referred to as “time value” or “risk premium,” is everything that is not intrinsic value. Because the intrinsic value is always known, extrinsic value is equal to the total option premium less intrinsic value. The extrinsic value of an option therefore fluctuates based on supply and demand (i.e. the market price of volatility).

This is a definition, not a recommendation. Options carry risk and can expire worthless. See how the desk actually trades at TrueTrader.