Options

Intrinsic Value

The immediate, "already favorable" value an ITM option carries — the amount by which it's in-the-money, before accounting for time value.

Intrinsic value is the immediate, “already favorable” value an in-the-money (ITM) option carries — the amount by which the option is ITM. An OTM option has zero intrinsic value. Total premium = Intrinsic Value + Time Value, a relationship covered fully in Module 12.

Formula

Call: max(0, Underlying Price − Strike Price). Put: max(0, Strike Price − Underlying Price).

See the full premium-splitting framework with worked examples in Intrinsic Value vs Time Value: How Option Premium Is Built.