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Define: Intrinsic Value



Intrinsic Value of an option is the part of its price which reflects the amount of "built in value" or advantage that its strike price gives you against the price of the underlying stock.

For instance, call options with strike price lower than the price of the underlying stock allows you to buy the stock at lower than its market price. This amount will be reflected in the price of the call options as intrinsic value. Similarly, put options with strike price higher than the price of the underlying stock allows you to sell the stock at higher than its market price. This amount will be reflected in the price of the put options as intrinsic value as well. Such options are known as "In The Money Options".

Read the full tutorial on Intrinsic Value.