Option Intrinsic Value
Option Intrinsic Value
What an option would be worth if exercised right now: for a call, the stock price above the strike; for a put, the strike above the stock price; never less than zero. An option trading at its intrinsic value has no time value left.
When to use: Use to see how much of an option's price is real, exercisable value versus hope. Deep in-the-money options are almost all intrinsic value; at- and out-of-the-money options have none.
Formula
Variables
| Symbol | Name | Description | Unit |
|---|---|---|---|
| Intrinsic | Intrinsic Value | Exercise value of the option today | $ |
| S | Stock Price | Current price of the underlying | $ |
| Strike | Strike Price | Exercise price of the option contract | $ |
| OptionType | Option Type | Call (1) or Put (-1) — enter 1 for a call, -1 for a put | integer |
Real-Life Examples
Example 1: In-the-Money Call
Stock at $110, call strike $100.
Given
Step-by-Step
Exercising buys $110 stock for $100, so the call is worth at least $10. Any market price above that is time value.
Example 2: In-the-Money Put
Stock at $95, put strike $100.
Given
Step-by-Step
The put lets its owner sell $95 stock for $100, worth $5 today. A call at the same strike would have zero intrinsic value.
Frequently Asked Questions
No. An option is a right, not an obligation, so if exercise would lose money the owner simply does not exercise and the intrinsic value is zero.
Rarely and briefly; if it were, buying the option and exercising would be a riskless profit, which arbitrage removes. American options trade at or above intrinsic value.