Intrinsic value is the amount by which an option is in the money (ITM)—the real, tangible value if the option were exercised immediately. For call options, it’s the stock price minus strike price. For put options, it’s the strike price minus stock price. Out of the money options have zero intrinsic value; their premium consists entirely of time value.
- Call: Stock Price - Strike (if positive)
- Put: Strike - Stock Price (if positive)
- OTM options have zero intrinsic value
How Intrinsic Value Works
Intrinsic value represents immediate exercise value:
Intrinsic Value Calculation:
For Calls:
Intrinsic Value = Max(0, Stock Price - Strike Price)
For Puts:
Intrinsic Value = Max(0, Strike Price - Stock Price)
Examples (Stock at $105):
Call $100 Strike:
IV = Max(0, 105 - 100) = $5 (ITM)
Call $110 Strike:
IV = Max(0, 105 - 110) = $0 (OTM)
Put $110 Strike:
IV = Max(0, 110 - 105) = $5 (ITM)
Put $100 Strike:
IV = Max(0, 100 - 105) = $0 (OTM)
Quick Reference: Intrinsic Value
| Option Type | Stock vs Strike | Intrinsic Value |
|---|---|---|
| Call | Stock > Strike | Stock - Strike |
| Call | Stock ≤ Strike | $0 |
| Put | Stock < Strike | Strike - Stock |
| Put | Stock ≥ Strike | $0 |
Example: Intrinsic vs Time Value
Premium Breakdown:
| Factor | ITM Call ($100 Strike) | OTM Call ($110 Strike) |
|---|---|---|
| Stock Price | $105 | $105 |
| Premium | $8.00 | $2.00 |
| Intrinsic Value | $5.00 | $0.00 |
| Time Value | $3.00 | $2.00 |
ITM call has $5 intrinsic value plus $3 time value. OTM call has $0 intrinsic value, all time value.
Intrinsic value is the real worth of an option if exercised now. For calls, it’s stock price minus strike. For puts, it’s strike minus stock price. OTM options have zero intrinsic value—their entire premium is time value.
Intrinsic Value by Moneyness
In The Money (ITM)
Has intrinsic value. The option has immediate worth if exercised.
At The Money (ATM)
Zero intrinsic value. Strike equals stock price.
Out of The Money (OTM)
Zero intrinsic value. Would be a loss to exercise.
Why Intrinsic Value Matters
Price Floor
Option premium can never be less than intrinsic value (for American options).
True Worth
Separates “real” value from time value speculation.
Exercise Decisions
Options with intrinsic value may be worth exercising.
Deep ITM Behavior
Deep ITM options move almost 1:1 with stock (high delta).
Intrinsic Value vs Time Value
| Aspect | Intrinsic Value | Time Value |
|---|---|---|
| What it is | Real immediate value | Premium for time/volatility |
| Can be zero | Yes (OTM/ATM) | Yes (at expiration) |
| Changes with | Stock price vs strike | Time, volatility |
| At expiration | Only component left | Zero |
Common Mistakes
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Confusing premium with intrinsic value – Premium includes time value too.
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Thinking OTM has intrinsic value – OTM intrinsic value is always zero.
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Ignoring time value decay – Even ITM options lose time value daily.
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Not understanding at expiration – Premium converges to intrinsic value.
How JournalPlus Tracks Options
JournalPlus calculates intrinsic and time value at entry, helping you understand what you’re paying for and track how each component changes.
