Why is the time value of an option maximal when it is at the money?


So it seems that the time value/extrinsic of an option is highest when that option's strike price is close to the underlying stock price. It then tapers off in both directions, so the time value decreases with a positive or negative delta between the strike and the underlying.

Why should this be the case? Why shouldn't you, for instance, charge a higher premium for an option which is in the money, since it will be more profitable and therefore more desirable?


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