What is an options intrinsic value?

The intrinsic value for a stock option is the difference between a stock’s price and the option’s strike price. It is the actual value of an option.

For example there is a call for $45 for stock XYZ. The stock is trading at $48. Therefore the intrinsic value for the option is $48 - $45 or $3.

Every option will be worth at least its intrinsic value. Otherwise you could just buy the option then turn around and buy the stock for a lower price sell it and make money.

However the option will always be worth more than the intrinsic value. The $45 call option may be worth $4. In this case we would say that the other $1 is time value. Time value is the value of the time left on the option as the time passes the time value decays.

The stock has to appreciate faster than time value decays. For this reason the less time value you buy and more intrinsic value you buy the less risky your option would be.

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