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Options glossary · the part of an option's price above its intrinsic value, all time and volatility
An option's price splits into two parts. Intrinsic value is what exercising would be worth right now: for a call, stock price minus strike, floored at zero. Extrinsic value is everything above that, the premium you pay for the chance of a bigger move before expiry. Out-of-the-money options are pure extrinsic value.
Extrinsic value is what theta eats and what vega inflates. It shrinks to zero at expiry, leaving only intrinsic value. This is why exercising an option early throws money away: you capture only intrinsic value and forfeit the extrinsic value you could have sold.
No. It always decays to zero by expiry, quickly near the end. At expiry an option is worth only its intrinsic value, which is why time decay is a one-way street for buyers.