Intrinsic Value and Time value (Options)

Kinda lost… so price = intrinsic value + time value? Im looking thru the old posts, i need to figure it out so i can know why excercising an american bond early is not smart.

Call option value = Time value + Intrinsic Value. If you exercise early, you blow away all the time value of the option. But I agree that the paragraph does not make that point very well.

Haha joey i changed it on you while you were still writing it… sorry man. I found an old post about it and didint want someone to give me the old “search button” reply. But that paragraph does suck. The time value is what i wanted to know though. thanks! and sorry!

actually… im reading your exact post from may: “So here’s the way I like to look at it: There are two components to the valuation of an option, intrinsic value and time value. Both of those are >= 0 always. If you exercise the call early, you are getting just the intrinsic value and blowing away the time value. If you feel like locking in your profits (which might be a good idea), you can always get more money by selling the call to someone else who wants the time value. This argument doesn’t work for puts because the stock has a floor. Thus, if the stock drops to 0 there is nothing better that can happen to you than has already happened so the time value is 0. Exercising the put then gives you a bunch of money you can put in the bank and earn interest on.” creepy how your past self helped me and your present helped me at the same time…

particularly because both my past and present self are so creepy…