Decoding the Intrinsic Value of Options

What is the Intrinsic Value?

In options trading, the intrinsic value refers to the real, tangible value of an option if it were exercised at the current market price. It represents the amount by which an option is in-the-money.

How Is Intrinsic Value Calculated?

  • Call Option: Intrinsic Value = Market Price – Strike Price
  • Put Option: Intrinsic Value = Strike Price – Market Price

(Only if the result is positive; otherwise, intrinsic value is zero)

Only in-the-money (ITM) options have intrinsic value. Out-of-the-money and at-the-money options have zero intrinsic value.

Example:
A stock is trading at ₹105
You hold a call option with a strike price of ₹100
→ Intrinsic value = ₹105 – ₹100 = ₹5

What if...

ScenarioOutcome
Option is in-the-moneyIntrinsic value is positive
Option is out-of-the-moneyIntrinsic value is zero
Option is at-the-moneyIntrinsic value is also zero
Tip: Intrinsic value helps traders understand the real worth of their option contracts, separate from time value or market speculation.

Last updated: 27 Jun 2025