Danish Krone Dutch Guilder EURO French Francs German Marks HK Dollars Italian Lira Indonesian Rup. Danish Krone Dutch Guilder EURO French Francs German Marks HK Dollars Italian Lira Indonesian Rup. Bank Holiday Calendar FX Options Tutorial Margin Trading Tech. The premium of an option that has no intrinsic value is made up solely of time value.
Time value reflects the uncertainty of an option being exercised at expiry.
The expected volatility in the underlying currency-pair. The time value of an option will be at a maximum when the strike price of an option is equal to the current forward rate. In general, the longer the period of an option, the greater its potential pay-off and therefore the more expensive it will be. While the amount of time value of an option will increase as the maturity lengthens it will do so at a decreasing rate. The interest rate differential between the two currencies in any particular option affects the option premium by affecting the relationship between the strike of the option and the current market forward rate.