Intrinsic Value (Option)

For a call option, intrinsic value is the underlying asset's current price minus the strike price, if that is positive. For a put option, it is the strike price minus the current price, if that is positive. If exercising would not be profitable, the intrinsic value is zero.

For example, if a share trades at 62, a call with a strike price of 55 has an intrinsic value of 7. A put with a strike price of 55 on the same share has an intrinsic value of zero, because selling at 55 something worth 62 would make no sense. A put with a strike of 70 would have an intrinsic value of 8.

An option with intrinsic value is said to be in the money. An option with no intrinsic value is either at the money or out of the money.

An option's price, its premium, is usually higher than its intrinsic value, because it also includes time value. At expiry, however, time value disappears, and the option's value equals its intrinsic value. The term intrinsic value has a different meaning when applied to shares or companies, where it refers to their estimated fundamental worth.