# out of the money time value versus in the money time value

For an out of the money option the time value is entirely positive, then if it moves into the money the time value has a negative impact on the new intrinsic value, ok, but it looks like the negative impact is disproportionate to the positive value there was when the option was out of the money... what is this effect?

So for example EURUSD is @ 1.0950 and the 1.0900 1 week put option is 50 / 55. A few hours later that day EURUSD moves to 1.0850 but the 1.0900 1 week put option price only moves to 70 / 75

In other words the put option price isn't the 50 pips of intrinsic value plus the earlier 50 / 55 pips of time value, or a value more like 100 / 105 (or for a small adjustment for time something like 98 / 103) instead it's often quite a lot less: like 70 / 75... what is that effect and why?

Something in the time value has changed from positive to negative.

If we break down the time value in terms of greeks, in this example the theta and rho are negligible because the underlying market price moves take place over a matter of hours and the option has 1 week more to run... We can see the option delta is clearly less than 1, but the delta doesn't change sign, right? I mean in this example the market moved 100 pips which took the option 50 pips into the money. Even with a delta effect you'd expect the 50 pips intrinsic value to be reflected in the price... correct me if I am wrong. The gamma peaked at the money and then decreased as the option's intrinsic value moved into the money.

What am I missing here? Does the gamma change sign? Is this some positive / negative vega effect?

Apologies if this is a newbie question :)

• I am not sure what you mean by "the time value has a negative impact". What is true is that the more an option is ITM, the more it's value consists (in percentage terms) of intrinsic value and the less (in percentage terms) it consists of time value. Whereas for an OTM, 100% of the value is time value. Jan 25, 2016 at 20:38
• @noob2 see edit :-) Jan 26, 2016 at 9:19