Every option price has two parts: what it would be worth if exercised right now, and what people pay for the chance of more.
Intrinsic value
What the option is worth if exercised now. A $90,000 call with bitcoin at $100,000 has $10,000 of it.
Time value
Everything above intrinsic value: the price of what could still happen before expiry.
In, at and out of the money
A call is in the money when the price is above its strike, at the money when they're about equal, and out of the money when the price is below. Puts are the mirror image.
Time value decays
All else being equal, an option loses time value every day. The decay speeds up as expiry approaches, so out-of-the-money options lose value quickly near the end unless the price moves their way. Longer-dated options cost more for the same reason: there's more time for something to happen.
The biggest driver of time value, besides time itself, is how much the market expects the price to move. That expectation is implied volatility, the subject of the next lesson.
