Intrinsic value
Summary
Intrinsic value is the amount an option is in the money. It measures the immediate exercise value, with out of the money options having zero intrinsic value.
Definition
Intrinsic value is the portion of an option’s value that comes from the current relationship between the underlying price or value and the strike. For a standard call, it is max(0, underlying price minus strike). For a standard put, it is max(0, strike minus underlying price). In the article, intrinsic value is a practical tool for judging what part of the premium reflects immediate exercise value and for checking expiry outcomes, such as whether a contract finishes in the money or out of the money. It does not by itself explain the full market price, because options can still trade above intrinsic value due to extrinsic value.