The amount by which its price is greater than its exercise value is its time value
The time monetary value hypothesis states that a dollar at present is worth a greater amount later. This is based on the idea that if a person had the money right now, they could save it or invest it to generate interest or profit later on. If a person invests the same amount of money tomorrow or next month, they might get a lower return or interest rate.
Similarly, an option's price before expiration may be higher than either its exercise price or intrinsic value. The difference between an option's price and exercise value is known as the time value. As a result, the amount by which a European Option's price exceeds its exercise value is best defined as the option's time value during the option's life.
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