However, the spread may not offset all of the risk of the uncovered writing position. For example, if the long portion of the spread has a higher exercise price than the exercise price of the short, or if the long has an earlier expiration date than the expiration date of the short, then the writer may still be exposed to significant risks from his uncovered writing position. At the Money This term means that the current market value of the underlying interest is the same as the exercise price of the option. In the Money A call option is said to be in the money if the current market value of the underlying interest is above the exercise price of the option. A put option is said to be in the money if the current market value of the underlying interest is below the exercise price of the option.
Intrinsic value reflects the amount, if any, by which an option is in the money.
Time value is whatever the premium of the option is in addition to its intrinsic value. This is entirely time value. An option with intrinsic value may often have some time value as well that is, the market price of the option may be greater than its intrinsic value. This could occur with an option of any style.