Intrinsic Value of Option

Option is a derivative instrument which gives the buyer of the option the right but not obligation to exercise the option. The intrinsic value of an option can be defined as the amount by which an option is in the money that implies that amount by which the option trader has made profit in the options whether it is a call or put option.

Therefore for a call option the Intrinsic Value of option will be equal to Spot Price of the underlying stock – Strike Price of underlying stock, while for a put option the Intrinsic Value of option will be equal to Strike Price of underlying stock – Spot Price of underlying stock

The intrinsic value of an option can be either a positive number or 0, it cannot be negative. For a call option, the strike price must be less than the price of the underlying asset for the call to have an intrinsic value greater than 0 and for a put option the strike price must be greater than the underlying asset price for it to have intrinsic value.

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