Exercise value, time value, and moneyness of an option
The exercise value is the value that an option buyer will get from the option on exercising it. The exercise value is always greater than or equal to zero because if the exercise value is negative, then the option buyer will not exercise the option. The exercise value is also called as the intrinsic value of an option.
The time value of the option is simply the total value of the option minus the exercise value of the option. It should not be confused with the time value of money. However, the time to expiration plays an important role in determining the time value of the option and the other important factor for determining the time value is the volatility of the underlying. Generally, the greater is the volatility and the greater is the time to expiration; the greater is the time value of the option.
Moneyness of options: If an option has a positive exercise value, it is called as an inthemoney option. The positive exercise value for call option happens when the spot price is greater than the exercise price. For the put options, if the spot price is lesser than the exercise price, then the options will have a positive exercise value.
Similarly, if the spot price is lesser than exercise price then the call option is called as an outofmoney option and it will be opposite for the put option.
When the spot price is exactly equal to the exercise price, then the both call options and put options are called as atthemoney options.
Spot price > Exercise price 
Spot price = Exercise price 
Spot price < Exercise price 

Call options 
Inthemoney 
Atthemoney 
Outofmoney 
Put options 
Outofmoney 
Atthemoney 
Inthemoney 
Check your concepts:
(58.16) The price of a put option is $3.50. The underlying is trading at $75 and the exercise price is $70. What is the time value of the option?
(a) $1.50
(b) $3.50
(c) $8.50
(58.17) Which of the following options is most likely to have the highest value?
(a) Inthemoney put option
(b) Atthemoney put option
(c) Outofmoney put option
Solutions:
(58.16) Correct Answer is B: Intrinsic value of the put option = Max(0, 7075) =0. Time value = Option value  Intrinsic value = 3.50  0 = $3.50.
(58.17) Correct Answer is A: Inthemoney options are more expensive than the atthemoney options. Atthemoney options are more expensive than the outofmoney options.
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