Intrinsic Value of Stock Options

Other Category: Accounting, Investment & Shareholders

July 24, 2013
Dan
call option, intrinsic value of stock options, put option, stock option, value

The intrinsic value of stock options is one of the factors – along with time value – that contribute to the value of a stock option. For an in-the-money stock option, intrinsic value is the difference between the strike price and the price of the underlying stock. For an option that is at-the-money or out-of-the-money, the intrinsic value is zero. An option’s intrinsic value cannot be negative, because if the option is not worth anything, the option holder would not exercise it.

Intrinsic Value – Call Option

For an in-the-money call option, the intrinsic value equals the price of the underlying stock minus the option’s strike price. (If the stock option is at-the-money or out-of-the-money, then the intrinsic value is always zero.) Use the following equation to calculate the call option:
Call Option Intrinsic Value = Stock Price – Strike Price

Intrinsic Value – Put Option

For an in-the-money put option, the intrinsic value equals the stock option’s strike price minus the price of the underlying stock. (If the option is at-the-money or out-of-the-money, the intrinsic value is always zero.)
Put Option Intrinsic Value = Strike Price – Stock Price
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