Intrinsic value (finance)
In finance, intrinsic value refers to the value of a security which is intrinsic to or contained in the security itself. It is also frequently called fundamental value. It is ordinarily calculated by summing the future income generated by the asset according to a criterion of present value. An option is said to have intrinsic value if the option is in-the-money. When out-of-the-money, its intrinsic value is zero. The intrinsic value for an in-the-money option is calculated as the absolute value of the difference between the current price (S) of the underlying and the strike price (K) of the option, floored to zero. For a call option while for a put option For example, if the strike price for a call option is USD 1 and the price of the underlying is USD 1.20, then the option has an intrinsic value of USD 0.20. The total value of an option is the sum of its intrinsic value and its time value.
