The extrinsic or time value is the difference between the full option price and its intrinsic value. Usually, the extrinsic value gets higher with higher volatility or time to expiry.
In this study you can see the extrinsic value of a put option, the graph was built using a long position in a put and a short position in a similar put but with today's expiry, the second position essentially representing the intrinsic value of the first position.
You can easily see that the extrinsic value is the highest when the base price is equal to the strike price.
Want to learn more? Download now an interactive reference application for iPhone.
The screenshot shows the following portfolio:
European put struck at 10.000 with expiry in 30 days
European put struck at 10.000 with expiry in 0 days
This is an excerpt from iOptioneer option trading reference application. In order to build the real-time dynamic strategy graph and run simulations you will need to download the application from App Store.