Intrinsic Value

Intrinsic value is an option’s value if it were exercised immediately. You can determine an option’s intrinsic value by comparing its strike price with the underlying security's current market price.

If a call option’s strike price is lower than the underlying stock’s current market price, it has intrinsic value because it could be sold for more than its purchase price. Conversely, if a call option’s strike price is higher than its current market price, it has no intrinsic value.

Calculating an option’s intrinsic value

Intrinsic value is the amount of money an option is in-the-money (ITM). Simply subtract the strike price from the underlying asset’s current market price to calculate intrinsic value. 

For example, a call option with a $50 strike price has $5 of intrinsic value if the stock price is $55. The same calculation applies to put options.

Intrinsic value does not include any extrinsic value that may also be associated with an option.

For an option to have any intrinsic value, it must be ITM. A call option must have a strike price below the underlying asset’s current market price, and a put option must have a strike price above the stock price.

Intrinsic value formula

The intrinsic value of an option is the amount by which an option is in-the-money. For a call option, it's the current market price of the underlying asset minus the option's strike price. For a put option, it's the option's strike price minus the underlying asset's current market price.

Intrinsic value vs. Extrinsic value

The intrinsic value of an option is the amount by which it is in-the-money (ITM). It represents the profit realized if the option were exercised immediately. The intrinsic value can be calculated by subtracting the current stock price from a call option's strike price or the strike price from the current stock price for a put option.

Extrinsic value, or time value, represents how much more an option is worth than its intrinsic value. Extrinsic value takes into account other factors, such as implied volatility and time remaining until expiration. As expiration approaches, extrinsic value erodes quickly until all that remains is any intrinsic value.