The divergence between an option's intrinsic value and its market value is usually greatest when the option is approximately at money.
<h2>What is option's intrinsic value?</h2>
The value an option would have today if it were exercised is referred to as its intrinsic value. Basically, the intrinsic value is the difference between the strike price of an option being profitable or in-the-money and the market price of the stock.
<h3>How to calculate option's intrinsic value?</h3>
Depending on whether the option is a call or a put, the intrinsic value is determined differently; nevertheless, the strike price of the option and the value of the underlying asset are always used:
- Call options that are profitable: Price of Underlying Asset - Strike Price = Intrinsic Value
- Put options that are in the black Strike Price - Underlying Asset Price = Intrinsic Value
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