Copyright © 2004-2010 Delta Interval, Inc.(www.deltainterval.com), All Rights Reserved. Legal Notice.
Intrinsic Value
Factors Affecting Intrinsic Value.
Intrinsic value is the value that could be realized by exercising an option then immediately liquidating the position in the underlying.
(i.e. exercise a call option to buy XYZ at a strike price of $20, then sell XYZ at the current price of $25; in this example there would be an intrinsic value of $5).There are two factors affecting intrinsic value: the strike price and the underlying security price.
Call Options: Intrinsic Value = Underlying Security Price - Strike Price
Put Options: Intrinsic Value = Strike Price - Underlying Security Price
(note: Intrinsic Value can not be negative, if the above equations produce a negative number the intrinsic value is zero.)
In-the-money options have an intrinsic value which is the same amount as the option is in-the-money.
At-the-money options have a market price which is currently at or very close to the strike price. At-the-money options don't have intrinsic value either, however they are on the verge of gaining intrinsic value if the underlying stock moves in a favorable direction.
Out-of-the-Money options have no intrinsic value.
Copyright © 2004-2010 Delta Interval, Inc.(www.deltainterval.com), All Rights Reserved. Legal Notice.