Extrinsic Value vs Implied Volatility

The portion of an option's market price above its intrinsic value; also called time value; reflects the time remaining until expiry and the implied volatility of the underlying; declines to zero at expiration regardless of the underlying price.

The annualized standard deviation of price returns implied by the current market price of an option, derived by solving the Black-Scholes model backwards from observed market price; forward-looking measure of expected future volatility; distinct from historical volatility which measures past realized movement.