481
AN INTrOduCTION TO OPTIONS ON FuTureS
risk is limited is not worth very much, because the strike price is so far away from the prevailing 
futures price. As Figure   34.1   shows, the time value will be at a maximum at the strike price. 
   2.   time remaining until expiration.  The more time remaining until expiration, the greater 
the time value of the option. This is true because a longer life span increases the probability 
of the intrinsic value increasing by any specifi  ed amount prior to expiration. In other words, 
the more time until expiration, the greater the probable price range of futures. Figure   34.2    
illustrates the standard theoretical assumption regarding the relationship between time value 
and time remaining until expiration for an at-the-money option. Specifi  cally, the time value is 
    FIGURE   34.1    Theoretical Option Premium Curve 
  Source:  Chicago Board of Trade, Marketing department.  
Call Option
Strike price
Intrinsic value
T -bond futures price130
132
134
136
138
140
Time value premium
8
6
4
2 Option premium
Strike price
Intrinsic
value
T-bond futures price
124
126
128
130
8
6
4
2 Option premium
Put Option
Time value premium
    FIGURE   34.2    Time Value decay 
  Source: Options on Comex Gold Futures,  published by Commodity 
exchange, Inc. (COMeX), 1982.  
Time value decay
94 10
Time remaining until expiration (months)
Time value premium