An option's price looks like one number, but it is two things added together, and the split decides whether you are paying for something the option is already worth or paying for a chance. Learn to separate them and the chain stops being a wall of numbers.
Intrinsic value: what the right is worth today
Intrinsic value is what you would get by using the option right now. A $300 call on a stock at $330 lets you buy $330 of stock for $300, so it has $30 of intrinsic value. A $350 put on the same stock lets you sell at $350 something worth $330, so it has $20. An out-of-the-money option has no intrinsic value at all. Intrinsic value is never below zero, because nobody exercises a right that loses them money; they simply do not use it.
For a call it is the stock price minus the strike, or zero. For a put it is the strike minus the stock price, or zero. You can compute it from the Strike column and the stock price with no other input.
Time value: what you pay for the chance of more
Time value is everything else: the option's price minus its intrinsic value. Say that $300 call trades at $34.50. Intrinsic value is $30, so $4.50 is time value. That $4.50 pays for the chance that the stock climbs further before expiration. Two things make time value bigger: more days left, and a stock that tends to move more. A $300 call with a year to run costs more than one with a week, on the same stock, because a year gives the stock more room to travel.
The chance of more is worth paying for even though the stock could fall as easily as rise, because the owner's outcomes are lopsided. If the stock rises $5, an in-the-money call gains close to $5. If it falls a long way, the call cannot lose more than the value it has, and once it is out of the money it has little left to lose. The option keeps the good half of the stock's moves and sheds most of the bad half. Time value is the market's price for that lopsided deal. Traders also call it extrinsic value. Same thing, two names.
The chart puts the two parts on one picture. The dashed hockey stick is intrinsic value, what the call is worth at expiration. The solid lines are the same call with time left. The gap between a solid line and the dashed one is time value.
A $100 strike call with 90, 30 and 7 days left, against its value at expiration (dashed). The gap between each line and the dashed one is time value. Drag volatility up and down and watch the gap grow and shrink.
Every solid line sits above the hockey stick, and the gap is widest at the strike. Push volatility up and the gap widens everywhere, because a stock that moves more makes the lopsided deal worth more.
Where time value is largest
Time value is not spread evenly across the chain. It peaks at the money, where nobody knows which side of the strike the stock will finish on, and shrinks as you move deep in the money or far out of the money. A call $50 in the money behaves almost like the stock and carries little time value. A call $50 out of the money is all time value, but not much of it, because it will probably expire worthless.
Time value of a $100 strike call against the stock price. The hump sits at the strike and shrinks as expiration nears. Drag volatility down and the whole hump flattens.
Read the Mid column on a live chain, subtract intrinsic value row by row, and you will find the same hump at the highlighted at-the-money row.
Time value runs out
At expiration there is no time left, so time value is zero and the option is worth exactly its intrinsic value. Between now and then time value drains away, and it drains faster as expiration gets close. That drain is time decay, and it is the running cost of owning an option.
Time value of a call against days left; read from right to left as the days pass. The at-the-money call loses its time value slowly at first and fastest in the last few weeks.
The chain's Theta column shows the decay directly, in dollars per share per day, and a later module is built around it. For now, know that every dollar of time value you pay is a dollar the market expects to be gone by expiration unless the stock moves.
Never below intrinsic value
An option that can be exercised today, which is how US stock options work, should not trade for less than its intrinsic value. If a $300 call on a $330 stock were offered at $28, you could buy it, exercise it to get the shares at $300, and sell them at $330: $30 back for $28 paid, with no risk. Traders hunt for gaps like that, so they close almost as soon as they open. When a deep in-the-money option's Mid looks a few cents below intrinsic, it is nearly always a wide bid and ask, not free money.
The maths: intrinsic value, time value and a rule of thumb
With S the stock price, K the strike and C the option's price: call intrinsic value is max(S - K, 0), put intrinsic value is max(K - S, 0), and time value is C - intrinsic. Check it against the lesson's example: the $300 call on a $330 stock at $34.50 has intrinsic value max(330 - 300, 0) = $30 and time value 34.50 - 30 = $4.50.
At the money, where intrinsic value is zero and the whole price is time value, a handy approximation is C ≈ 0.4 × S × v × √T, with v the volatility as a decimal and T the time left in years. For a $100 stock at 30% volatility with 30 days left, √(30/365) is about 0.287, so C ≈ 0.4 × 100 × 0.30 × 0.287, about $3.44. The full model with a 4% interest rate gives about $3.59, close enough for a sanity check.
Cut the time to a quarter, 7.5 days, and √T halves, so the time value roughly halves too, to about $1.76 in the full model. A quarter of the time keeps half the value: that square root is why decay speeds up at the end. The 0.4 comes from the bell curve; it is 1 divided by the square root of 2π, about 0.399.
Your turn
Open the AAPL chain on the expiration named in the question and find the in-the-money call it points at. Take the stock price from the quote bar and subtract the strike for intrinsic value, then take the call's Mid and subtract that intrinsic value for time value. Then look at a call above the stock price, where the whole Mid is time value.