Options pricing

Intrinsic Value

The amount an option is in the money, floored at zero.

01 / Definition

What Intrinsic Value Means

Intrinsic value is immediate exercise value. For a call it is underlying minus strike; for a put it is strike minus underlying, with both floored at zero.

02 / Calculation

Intrinsic Value Formula

Call: max(S − K, 0) · Put: max(K − S, 0)

03 / Worked Example

How to Read the Result

With stock at $108, a $100 call has $8 intrinsic value. At a $10.50 premium, $2.50 is time value.

04 / Boundaries

Limitations

It ignores time and volatility.
Exercise is not always the best exit.
Multipliers and costs affect dollar outcomes.

05 / Questions

Common Questions

Can intrinsic value be negative?

No. Exercise value is floored at zero.