Options
Intrinsic Value — Definition & Example
The portion of an option's premium that comes from being in-the-money — the immediate exercise value.
Intrinsic value is what an option would be worth if exercised immediately. For a call, it equals max(0, underlying − strike). For a put, it equals max(0, strike − underlying). OTM options have zero intrinsic value — their entire premium is time value, which decays to zero by expiry. ITM options retain at least their intrinsic value at expiry regardless of decay.
Formula
Call intrinsic = max(0, Spot − Strike); Put intrinsic = max(0, Strike − Spot)Example
NIFTY at 24600. The 24500 CE has intrinsic value = max(0, 24600 − 24500) = ₹100. The 24700 CE has intrinsic value = max(0, 24600 − 24700) = ₹0 (OTM).
Related
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