Intrinsic Value

Intrinsic Value – literally the option strike price minus the current underlying price. For example if an underlying is $100 and a call option strike is $90, this would be $100 – $90 = $10 and so would have $10 intrinsic value.

If that same calculation is negative, then the option has zero intrinsic value. For example if an underlying is $100 and a call option strike is $110, this would be $100 – $110 = -$10 and so would be considered zero intrinsic value.

Intrinsic value can be seen as the only “actual” value in an option price – the remaining part of an option price is called extrinsic value that consists of only time premium.

At option expiration all options have only intrinsic value. Options that are Out of the money at expiration by definition have zero intrinsic value.

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