Intrinsic Value
The immediate exercise value of an option — how much in the money it is right now, ignoring time and volatility.
Formula
Call intrinsic = max(0, Spot − Strike) | Put intrinsic = max(0, Strike − Spot)
Intrinsic value is the real, tangible component of an option's premium. It is the profit a holder would lock in by exercising immediately.
For a call: max(0, Spot − Strike). For a put: max(0, Strike − Spot). An out-of-the-money option has zero intrinsic value — its entire premium is time value.
Deep-in-the-money options trade nearly entirely on intrinsic value, as the time value becomes negligible relative to the total premium.
Related Terms
Call Option
An options contract giving the buyer the right to purchase the underlying asset at the strike price before or on expiration.
BeginnerExercise
The act of an option holder invoking their right to buy (call) or sell (put) the underlying at the strike price.
IntermediateExpiration Date
The last date on which an option can be exercised; after this date the contract ceases to exist.
IntermediateMoneyness
The relationship between an option's strike price and the current price of the underlying — ITM, ATM, or OTM. Directly drives intrinsic value and delta.
BeginnerOptions Contract
A contract giving the buyer the right — but not the obligation — to buy or sell an underlying asset at a set price before or on expiration.
BeginnerPremium
The price paid by the option buyer to the option seller for the rights granted by the contract.
IntermediatePut Option
An options contract giving the buyer the right to sell the underlying asset at the strike price before or on expiration.
BeginnerPut-Call Parity
The no-arbitrage relationship linking the prices of a European call and put at the same strike and expiry: C − P = S − K·e^(−rT).
AdvancedTime Value
The portion of an option's premium beyond its intrinsic value, reflecting the probability that the option moves further in the money before expiry.
Intermediate