Intrinsic value
Definition · Level 1 · Options basics
Keep reading with Tradecraft
You’ve read your 3 free definitions this month. Tradecraft explains all 738 terms and strategies, with the lessons that teach them, flashcards that come back before you forget, quizzes and a payoff lab.
What an option would be worth if exercised right now: max(S − K, 0) for a call, max(K − S, 0) for a put.
Example
XYZ at 52.40 → the 50 call has 2.40 of it.
Where Tradecraft teaches it
Level 1 · Options basics, in the lesson “Moneyness: intrinsic vs extrinsic value”: ITM, ATM, OTM for calls and puts, and how every premium splits in two.
Related terms
- At the money (ATM)Strike equal, or nearest, to the current stock price; for a given expiry it usually carries the most extrinsic value.
- Extrinsic (time) valueThe part of an option's price above its intrinsic (exercise) value — payment for time and volatility; it decays to zero by expiration.
- In the money (ITM)Having intrinsic value: a call whose strike is below the stock price, or a put whose strike is above it.
- MoneynessWhere a strike sits relative to the current stock price (in, at or out of the money): it tells you whether an option has intrinsic value and roughly…
- Out of the money (OTM)No intrinsic value: a call struck above the stock price or a put struck below it.
- 0DTE“Zero days to expiration”: options on their final trading day — little time value left, and near the money gamma and time decay are at their most…