Intrinsic Value (Option)

The amount an option would be worth if exercised immediately, and zero if exercising would not pay.

Example

With a share at 100, a call with strike 95 has intrinsic value of 5.

Important

Not to be confused with a company's intrinsic value. For options it is simple arithmetic on the strike and current price.

Related terms

  • Time Value — The part of an option's premium above its intrinsic value, reflecting time left and expected volatility.
  • Strike Price — The price at which an option holder can buy (for a call) or sell (for a put) the underlying asset.

Lessons that explain it

  • You pay for intrinsic value, time and uncertainty - and time runs out — An option's price has two parts: what it would be worth if exercised now, and extra value for the time and volatility left. That second part shrinks to zero by expiry. (12 min)

All 578 terms in the Investing glossary