Options

Intrinsic Value

The part of an option’s price that comes from real, exercisable value.

Intrinsic value is how far in the money an option is. An option’s total price is intrinsic value plus extrinsic (time) value. Out-of-the-money options have zero intrinsic value, so they are made entirely of time value that melts away as expiration nears.

For example

A $50 call with the stock at $55 has $5 of intrinsic value. If the option trades for $6, the other $1 is extrinsic (time) value.

Related terms

Extrinsic Value (Time Value)In the Money (ITM)Option Premium

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