As you will see, this easy-to-use system can benefit either the beginning or the more experienced investor. It enables you to predetermine your potential profit BEFORE you make an investment. THE ADVANTAGE OF USING THIS SOFTWARE PROGRAM IS THAT YOU JUST FILL IN THE BLANKS AND THE SOFTWARE DOES THE REST. YOU THEN HAVE THE OPPORTUNITY TO MAKE THE DECISION AS TO WHETHER OR NOT THE RETURN ON YOUR INVESTMENT THAT THE PROGRAM COMPUTES FOR YOU MEETS YOUR INVESTMENT REQUIREMENTS.

To summarize, using this program can benefit you if you want to dramatically:
- increase your cash flow;
- increase the value of your KEOGHs, stock portfolios, self-directed IRAs, or retirement funds;
- lower the cost of your investment.

You will see how easy it is to get the ultimate return on your assets with a system that uses a combination of stocks and options. You buy a stock and sell an option on that stock. The money this earns (the premium you receive for selling the option, minus the commission) gives you extra cash flow and downside protection on your stock. If you just buy the stock and do not sell an option, you receive neither the extra cash flow, nor the downside protection. Details about how this works are covered in the program. (See the GLOSSARY section at end of document for an explanation of unfamiliar terms.)

COVERED CALL OPTIONS AS A CONSERVATIVE STRATEGY
Generally, you should only write options on stock that you are willing to own. This means that before purchasing the stock, you should analyze it according to the measurements appropriate for your investment program, such as p/e, book value, project earnings, and the industry.

This program describes a very conservative use of options because it deals with options in a covered call strategy. Most sophisticated investors and pension fund managers consider the judicious use of writing covered call options to be one of the safest and most reliable investment strategies.
For example, in their booklet "The Value Line to Option Strategies", the esteemed investment service Value Line states:

"Curiously, the most attractive option strategy when returns are concerned in relation to risk is covered call writing. It as provided profits over 20% a year with relative consistency and it is only about half as risky as holding a portfolio of common stocks."

Writing covered calls means selling a person the right to buy your stock at a certain price (exercise or strike price), within a certain time period (expiration cycle). When you sell (write) an option on stock you already own, the option is "covered" by the stock you own; therefore it is referred to as a covered call option. The money you receive is additional cash you would not have had if you just bought the stock and did not sell an option.

THE REWARD-RISK RATIO OF COVERED CALLS (OPTIONS)
Although selling (writing) covered calls is considered a conservative investment strategy, it is not possible to eliminate absolutely every element of risk. Fortune magazine points out: "...you must take some risks with your investments, if you want to beat, or at least compete with taxes and inflation."

This program provides you with the means to EVALUATE AND CONTROL your investment risk. It makes it possible for you to specifically measure your own "reward-risk" ratio before you invest one cent. Although it isn't possible to completely avoid risk, this program provides a reliable way to control it. Covered call writing can not prevent a stock from going down, but it can protect you on the downside. or in other words, hedge your risk of a move against you.

Writing covered call options is a reliable technique that you can learn, test, and experience at your own pace. As your confidence with the Altorfer system grows, you will realize that you can evaluate, adjust, and control your own reward-risk ratio, as you see fit.

WHAT IS AN OPTION?
First of all, what is an option? An option is a contract giving the purchaser the "right" (not the obligation) to buy or sell a specific number of shares of a stock at a definite price (the exercise price), on or before a specified date (the expiration date). Equity, or stock, options are sold in lots of 100 shares of stock. One option equals 100 shares of a particular stock.

For example, if a stock is selling for $35 a share, your initial investment will be $3,500 for the 100 shares you will need in order to sell an option on that stock. If you sell an option for $3, you will receive $300 for that option, minus the commission you pay. Quoted option prices usually refer to just one of the 100 shares that represent one option.

WHILE THERE ARE MANY INVESTMENT STRATEGIES DEALING WITH OPTIONS, THIS PROGRAM RECOMMENDS AND IS DESIGNED TO MAXIMIZE THE MOST CONSERVATIVE OF THESE STRATEGIES: COVERED CALL OPTIONS.

WHAT ARE COVERED CALL OPTIONS?
Since some people find covered call options confusing, comparing them to real estate deals may make them easier to understand. In the stock market, an option becomes a "covered call option" when there is an underlying stock that the option is written against. In many ways options on stock operate like options on real estate.

In the real estate market, if you own a piece of property and someone is interested in possibly buying it, he can offer you a sum of money for an "option" to buy it during a specific period of time. When you accept the option, you agree to hold the property off the market for the amount of time specified in the option. During that period he has the option of buying the property for the previously agreed upon price. If he decides not to buy the property during the specified period, you keep the option money (the premium) as well as the property. If he decides to buy the property, he will also pay you the agreed upon price (the strike price) for that property. In this case, you will keep both the purchase and the option monies.

Selling (writing) covered call stock options works in much the same way: You have or buy a number of shares of stock and sell an option on that stock for a predetermined exercise (or strike) price, with a predetermined expiration date. When the expiration date arrives, the person who holds the option can buy the stock by paying you, the stockowner, the agreed upon exercise price.

As owner of the stock, you deliver it upon receipt of the exercise price, but you also keep the money you received for the option. Note that the amount you receive, or the premium, will always be minus the amount you pay as a commission.

If the person who holds the option decides that the predetermined (i.e. exercise) price is too high, or he just changes his mind for any reason, he can forgo buying the stock and just allow his option to expire, worthless. In this case, you, as owner of the stock, keep both the stock AND the money you received for the option. You can then sell another option on the stock to someone else.

Approximately 70% of options that are sold expire worthless, meaning that they are not exercised. When you institute a regular practice of selling options, it is the accumulation of option monies that provides you with the additional cash flow on your investments.

MORE ABOUT OPTIONS
If you are an investor who has never been involved in options of any kind, you may associate all "options" with gambling and high risk investment. While it is true that options can range from very risky to very conservative, the "risk" depends on how they are used. People who are familiar with real estate transactions may not hesitate to offer an option on their real estate, but feel fear and anxiety when they think about selling (i.e. writing) options on their stock. In terms of financial safety and potential gain, however, stock options are a safer and surer bet than real estate.

With real estate, in most cases only a very small number of people may be interested in buying an option on your real property. In many instances you may not even find anyone who is interested in such an option. Stock options are quite different. Since many people are buying and selling options all over the world on any given day, there are "option exchanges" where options are traded just as stocks are traded. Assuming that the stock you want to sell an option on is one that other investors will want to own (i.e. one that inspires "open interest"), you should have no difficulty in selling your option.

There are 5 major exchanges where options are traded:

1. Chicago Board of Option Exchange
2. American Options Exchange
3. Pacific Exchange
4. Philadelphia Exchange
5. New York Options Exchange

Buying and selling options is just the same as buying and selling stocks. Option transactions are always conducted through a broker, who buys or sells options through the traders who are on the floor of the options exchange. You, the investor, don't know (or care) who buys the option. To repeat a fundamental point, it is important to realize that when you sell an option it is sold through an exchange where options are being traded every day.

Some investors are buying those options and some are selling. If you sell a call option on a stock and then later want to keep the stock (for any number of reasons, such as thinking that the option is going to be exercised), you can go to the exchange and buy back an option that has the same expiration date and exercise price. (See "Rolling Up" for details of this strategy.)

WHO WRITES COVERED CALL OPTIONS?
An investor sells (i.e. writes) covered call options for 3 reasons:
1. To increase his cash flow. The money he receives for the options is money he would not have if he had not sold the option.
2. To lower the net price he paid for the stock. As soon as an investor sells an option, his investment in the stock is lowered by the amount he receives for the option.
3. To protect his stock on the downside, or hedge against inflation.

WHO BUYS OPTIONS THAT COVERED CALL WRITERS SELL?
An investor buys a covered call option for one of three reasons:
1. For a small amount of money an investor can claim the right to buy a stock at a predetermined price between the date of the option's purchase and the date of its expiration. A small percentage of investors buy options in the hopes that the underlying stocks will go up and they will be able to benefit from the increase in the price of the stock because their option has locked in the earlier, lower rate.
2. Most investors, however, buy options with no intention of buying the stock. Similarly, many investors sell options with no intention of selling the underlying stock.
3. To hedge their risk and protect against their position in the stock market. It is interesting to note that those who write (sell) a covered call are using a conservative strategy, in hopes of leveraging their money for a large profit; but those who buy the option are using a speculative strategy.

COVERED CALL OPTIONS COMPARED TO JUST BUYING STOCK
If you just purchase stock you can only make money when the stock goes up, and you have no downside protection. The covered call strategy, however, allows you to make money three different ways:
1. If the stock goes up to the exercise price and is called (bought) - you make the difference between what you paid for the stock and what you received for the stock PLUS the money you received for the option (the premium, minus the commission).
2. If the stock stays either the same or below the exercise price - you will make the money you received for the option (the premium, minus the commission) PLUS you will retain the stock and then can sell another option and again increase your cash flow.
3. If the stock goes down less than the premium you received for the option - you will make the money you received for the option AND you will have lowered the cost of your stock by the amount you received for the option.

COVERED CALLS VS BONDS
Many retired people living on fixed incomes find it difficult to maintain their standard of living with income from their bonds and money market accounts. Bonds and money market accounts have a fixed rate based on the going interest rate, which is usually between 5% to 8%. Covered call options can have a return between 18% to 40%, with very little more risk. Value Line observes that "writing covered calls is safer than just buying stock." Some investors may feel that bonds are safer because they are based on a fixed amount of money at the due date, and because many are backed by a governing body or are federally insured. But few investors keep bonds until the due date, and in the meantime bonds can fluctuate because of changes in the interest rate. Bonds generally lose buying power for investors over a period of time because of inflation. By paying attention to covered call options an investor can beat bond and money market returns by a considerable amount.

USING CALL OPTIONS IN CONJUNCTION WITH STOCK ALREADY OWNED
Many investors have stocks they bought some time ago that have appreciated substantially in terms of market value; however they receive little in the way of percentage returns from actual dividends relative to the market value of the stock. Even though these investors can now use the extra income (especially if they are retired), they are reluctant to sell these stocks because they will incur a huge capital gains tax. Investors in this situation can use the Altorfer System For Writing Covered Calls to learn how these "locked in assets" (sometimes also called "hidden assets") can be used to increase cash flow without incurring a large capital gains tax. IN THIS SITUATION (i.e. when you are dealing with stock you have owned over a period of years), AT NO TIME CAN YOU ALLOW YOUR STOCK TO BE CALLED OR YOU WILL INCUR A LARGE CAPITAL GAINS TAX.

At the very least, if your stock is called, you can buy the number of shares called on the open market, and deliver those shares to cover your called option (this way you will retain the original shares.) The following scenario illustrates one way that you might increase your cash flow. Assume you own 1000 shares of XYZ stock which you bought ten years ago for $20 per share, for a total investment of $20,000. Currently the stock sells for $60 per share, or a total of $60,000 for 1,000 shares. The dividend is 2% of the market value, or $1,200. Now assume that you can sell a 90-day option on the stock for $4.00 a share, with a strike price of $65.00. This equals $4,000, or a 20% return on your original investment. If the stock goes to $65 or above and the option is exercised, you will have to deliver your shares of XYZ; however, since you do not want to incur a large capital gains tax, you can then choose one of two possible actions: 1. You can buy 1,000 shares of XYZ on the open market and deliver them to the option holder. Your out-of-pocket cost will be the difference between what you received for the options plus what you received for the stock, and what you have to pay for the new stock. And of course the original stock, which you will then retain, will have also increased in value to the same mount you have to pay for the new stock. 2. The better way to prevent the stock from being called is to use a procedure called "rolling up".

"ROLLING UP" (a.k.a., "rolling forward" or "buying back")
"Rolling up" is the best strategy to use to keep a stock from being "called" when its market price has risen to the option's exercise (strike) price. A few days before the date for the expiration of the option (assuming the stock has gone up to the strike price), you can buy back your option and then sell another option at a higher price, with an expiration date that is farther out. The day before the expiration date of the first option, the option will no longer have any time value; therefore the price of the expiring option will only be its intrinsic value. The second, or new, option you sell, however, will include in its price both time value and intrinsic value. Thus, generally the sale of the farther out option will be enough to cover the cost of buying back the near option, although the exercise price of the option will be increased. In order to be absolutely certain that a particular stock is not "called", you may have to keep rolling out several times. BUYING STOCK AND

SELLING AN OPTION ("BUY WRITE" ORDER)
Stocks and options have their own exchanges, and the prices fluctuate rapidly. Because this program depends on the combination of buying a stock at a certain price and selling an option at a certain price, in order to be certain you achieve the predetermined percentage return (which you determined from using this program's trial run system), it is suggested that you give your broker a "buy-right" order. A "buy right" strategy means buying a stock and selling an option at the same time. For example, using this program you first determine the price you will pay for the stock. Then you subtract the amount you will receive for the sale of your options from the price you will pay for the stock. This figure is the net price for the cost of the combination. When you do a "buy right" you will notice that the program gives you a recommended price to place on the buy right. This price is the same as the break-even point, which is the price of the stock minus the sale of the option. In a representative scenario, you next call your broker and say: I want to "buy right" 200 shares of Caterpillar for $50.00 and at the same time sell two July $55 call options for $2.00, for a net cost of $48.00. If you buy the stock and then sell the option separately, you might find that the net price you were counting on had narrowed because of fluctuation of both the stock and the option. You also may not get the sale. By using the "buy right" technique, you can avoid these unpleasant surprises.

COVERED CALL OPTIONS AS A BULLISH STRATEGY
If you are really bullish about a stock, sell an "out of the money" option. An option is "out of the money" when the exercise price of the option is higher than the price of the stock the option is written on. If the stock reaches the exercise price, you will have the increase in the value of the stock from your original purchase price, PLUS the amount you receive for the option. Your downside protection will only be the amount you receive for your option. For example, if Caterpillar is selling for $50, as the writer of the option you will want to sell a call (option) at $55 or $60, depending on which option will give you the best annualized return. At the time the stock reaches the exercise price and can be called away, you will have the increase in the price of the stock PLUS the money you receive for the call option. COVERED CALL

OPTIONS AS A BEARISH STRATEGY
As the writer of the option, if you are less bullish about stock (or even bearish), your best strategy will probably be to write an "in the money" option. An option is "in the money" when the exercise price is below the price of the stock the option is written on. While you agree to sell your stock for less than you paid for it, however, you will still make a profit on the transaction because of the price you receive for the option. For example, if you like Caterpillar (for which you paid $50 per share for 100 shares) but aren't too positive about its immediate future, or think that there may be a pause in the market as a whole, then you can sell an option with an exercise price of $45. Since the option will be for less than the current selling price of the stock, the option will probably sell for $7. The intrinsic price of the option will be $5 and the time cost will be $2. Note that if the stock is called at $45, while you will have lost $5 per share, you will have received $7 per share for the option, so you will have made $2 per share on your original investment. And in this instance you will also have great downside protection because you will not lose money unless the stock falls below $43 a share. (Since options are sold in lots of 100 shares of stock; the initial investment in the example above would be $5,000 for the stock, $700 for the option, etc.)

USING COVERED CALLS TO INCREASE CASH FLOW IN A 401(k) ACCOUNT
If you have stocks in your pension or 401(k) fund that have had substantial capital gains, selling the stock should be avoided because the sale will make you liable for a large capital gains tax. This program can show you how to increase the yield on this asset without selling the stock. This is done by writing an option on the stock that is "out of the money". If the stock get near the exercise price a week before the expiration date, you can buy back the option and sell an option "farther out". In all probability this new option will pay for the option you have had to buy back. If the stock does not rise to the exercise price, you can put the premium you received for the option into your retirement account tax free. The money will be income you have received without investing any additional money.

NOT A SLAM DUNK - YOU HAVE TO WORK AT IT!
Even though by using this program you can line up all of the facts necessary to make a decision about whether or not to write a covered call option, you still must follow the prudent investor's process of analyzing the underlying stock. As noted earlier, you should only write options on stock that you are willing to own.

THE DOWNSIDE
When the price of the underlying stock goes down, you experience the "downside", and you lose money; however, you will lose less money if you have sold an option against the stock (by the amount you receive for the option). IF THE STOCK GOES DOWN LESS THAN THE AMOUNT YOU RECEIVE FOR THE OPTION, YOU WILL ACTUALLY MAKE MONEY! For example, if you buy 100 shares of ABC for $50 a share and sell an option for $2.50 a share with an exercise price of $55, and an expiration date 60 days out, if the stock goes down to $45, you will lose $2.50 per share ($50 stock -$2.50 option = $47.50 net cost per share). BUT if you just buy the stock and hold on, you will lose $5 a share, or twice as much as you would have lost if you had sold the option. And if the stock only goes down $2.50, you won't lose anything! You can anticipate and defend against deep and sudden losses that market volatility might cause by employing a "stop loss" strategy. This is done by placing a "stop loss" order on your investment at the same time you place a covered call order. Many investment advisors suggest that a stop loss order be placed with the broker at 10% below the purchase price of the stock. For example, if you bought Caterpillar at $73.87 per share and want to offer an option on that stock, your broker would suggest that you place a stop loss order at 10% below that price ($73.87 -$7.38 = $66.49). Your potential loss on that trade would be $7.38. BUT if you sell an option on the stock at the same time you buy it, and also place a stop order, your potential loss will be lower. For example, if you buy the stock at $73.87 per share and at the same time sell an option for $2.67 per share (with a call price of $75 for 60 days) AND place the same 10% stop order ($66.49), if the stock goes down to the stop loss you will lose only $4.71 per share. This loss will be 6% of your investment instead of the 10% loss the investor who does not sell an option will experience. IF YOUR STOCK ONLY GOES DOWN 4%, YOU WILL BREAK EVEN AND NOT SUFFER ANY LOSS ($73.87 - $2.67 = $71.20). If you do not choose to give your broker a stop loss order, it is suggested that you create your own "mental" stop loss by carefully watching the movement of your stock's market price.

THINGS TO CONSIDER WHEN WRITING COVERED CALL OPTIONS
The following basic criteria should be considered when evaluating stock for covered call writing:
1. The stock should be in an uptrend.
2. The stock should be one you are willing to own over the long term.
3. The underlying value of the stock should be ranked #1or #2 by Value Line.
4. The underlying stock should have a Delta of over 100.
5. Short-term options sold "at the money" will usually give you the best annualized return. (You can determine which option to sell by trying the various options in this program.)
6. Dividends will increase the annualized return, so try to buy a stock before its ex-dividend date.
7. If the annualized return shown in the program is less than 18%, the option premium is probably too low.
8. The price of the option is directly affected by changes in the underlying stock's volatility. More volatility in the underlying stock boosts the price of the option. When volatility eases, the price of the option declines.
9. The more uncertainty about a stock's future direction, the higher its volatility and premium. When a stock exhibits a clear trend, the price volatility tends to be low and the time value of options tends to contract.
10. While writing covered calls is basically a bullish strategy there are times when you can use writing "in the money" options as a defensive, or bearish strategy. If you think a stock might be going down, by writing an "in the money" option you protect yourself to the extent that the call is in the money, PLUS you receive the money for the option.

SUMMARY
Today many people are becoming more and more concerned about their cash flow. The whole idea behind selling covered calls is to increase cash flow in a conservative manner. This concept is especially appealing to those investors who want to get as big a return as possible from their capital. This means that anyone with capital of $500,000 or less will probably find it profitable to use the covered call strategy with part of their investment to increase the return on their capital. Many investors who are reluctant to spend the small amount of time required to understand how to use covered call strategy as an investment tool say: "I would rather just buy the stock and wait for it to go up to the top and then sell." Experience substantiates the pitfalls in this thinking. Most people who say this never sell at the top. In fact most don't sell at all and instead ride the stock back down again, either because they fail to recognize the top, or because they lack the continuing interest or discipline required to monitor their stocks closely. They fail to make the decision, and instead say: "The stock is going higher." Then it goes down and they say: "I should have sold it at the top."

ONE OF THE GREAT ADVANTAGES OF THE COVERED CALLS STRATEGY IS THAT IT TEACHES YOU TO MAKE DISCIPLINED DECISIONS. IT ALLOWS YOU TO CREATE INVESTMENT SITUATIONS WHERE YOU ARE IN CONTROL OF MORE OF THE RISK FACTORS THAT MIGHT ADVERSELY AFFECT YOUR MONEY. WITH THE HELP OF THE ALTORFER SYSTEM YOU DECIDE ON THE MOST APPROPRIATE COURSE OF ACTION, AND THEN PROCEED WITH CONFIDENCE, KNOWING THAT YOUR CHOICES ARE BASED ON SOUND, CONSERVATIVE, WORKABLE INVESTMENT STRATEGIES!

In summary, this program is designed to help you: - dispel your fears about option investing and unravel the mystery about using covered call options to increase your cash flow; - easily determine the "reward-risk" ratio before you make any cash investment what-so-ever; - realize through your own experience why covered call writing is more conservative than just buying stock. Specifically, after you have mastered this program it will be easy for you to determine: - the cash flow of the covered call strategy; - the percentage return on the investment a. if the exercised price was not reached; b. if the exercised price was reached and the stock was called away; - the return, annualized; - what is your downside protection.

EXPLANATION OF SYMBOLS
Name of Stock: (stock is Micron Technology) Stock ticker symbol e.g. MU
Name of Option: Date and Strike code symbols e.g. MUJM (J is an expiration date of 10/21/95; M is a strike price of 65) In all option symbols, the second to the last letter signifies the expiration date and the last letter signifies the strike price.

The program will automatically fill in these fields when you write the option symbol. Number of Options: (#) (one option = 100 shares of stock) All other symbols are self-explanatory.

Expiration Months: Jan = A May = E Sept = I Feb = B June = F Oct = J Mar = C July = G Nov = K Apr = D Aug = H Dec = L

Strike Prices: (The most commonly used. Contact your broker for strike prices not included here.) A = 5 G = 35 M = 65 S = 95 B = 10 H = 40 N = 70 T = 100 C = 15 I = 45 O = 75 U = 7 1/2 D = 20 J = 50 P = 80 V = 12 1/2 E = 25 K = 55 Q = 85 W = 17 1/2 F = 30 L = 60 R = 90 X = 22 1/2 Y = 27 1/2 Z = 32 1/2

TRY VARIOUS OPTIONS AND EXPIRATION DATES TO SEE HOW YOU CAN GET THE BEST ANNUALIZED RETURNS.

GLOSSARY
Understanding how and why options work requires that you familiarize yourself with a few terms that are normally used in buying and selling options. Initially these terms may sound complex, but they will become familiar in a short time.

AT THE MONEY: An option is "at the money" when its exercise price is the same as the underlying stock it is written on. (e.g. Caterpillar stock is $75 a share and the exercise price is $75 a share)

BUY WRITE: A "buy right" strategy means buying a stock and selling an option at the same time.

CALL OPTION: A call option gives the purchaser the right to buy a security at a certain price before a certain date.

COVERED CALL OPTION: A call option is "covered" when the person who writes the call owns the underlying stock.

DELTA: A measure of how the option's price will change if the price of the underlying stock changes.

DOWNSIDE: The risk or loss incurred when the value of a stock is going down.

EX-DIVIDEND DATE: The date that establishes which stockholders will receive the distributions (cash dividends, stock dividends, and rights issues).

EXERCISE PRICE: The price at which the option holder has the right to purchase the underlying stock; also called the "strike price".

EXPIRATION CYCLE: Every stock option is assigned a particular expiration cycle. All equity options trade four months at a time: two near months plus two additional months of their respective cycles.

EXPIRATION DATE: The expiration date of all options is the Saturday immediately following the third Friday of the expiration month. The last day to trade or exercise expiring options is the third Friday of the expiration month. If Friday is a holiday, the last trading day will be the preceding Thursday.

IN THE MONEY: An option is "in the money" when the exercise price is below the price of the stock the option is written on.

INTRINSIC VALUE: The difference between the current price of the stock and the option's exercise price.

OPEN INTEREST: The degrees of interest investors have in a stock. When determining what option to sell, the investor should find out how much open interest there is in that stock. The number of options that have been bought on that stock determines the option interest. The greater the open interest, the greater the liquidity. Liquidity is important when an investor wants to buy or sell an option.

OPTION: The purchased right to buy a stock at a specified future date, at a definite price.

OUT OF THE MONEY: An option is "out of the money" when the exercise price of the option is higher than the price of the stock the option is written on.

PREMIUM: The trading price of the option. It is equal to the sum of the option's intrinsic value and its time value.

ROLLING UP: "Rolling up" (also called "rolling forward" or "rolling out") means to buy back an option and sell another option farther out (i.e. with a later expiration date). This strategy is used to keep from selling a stock when its market price has risen to the option's exercise price.

STOP LOSS: An order on a transaction that limits potential loss to a designated per cent of the sale price.

STRIKE PRICE: The price at which the option holder has the right to purchase the underlying stock; also called the "exercise price".

TIME VALUE: Prior to an option's maturity, its premium has time value, as well as intrinsic value. The amount of time value is dependent on the time left before the option's expiration date.