Our Recommended Broker

Get $50 in free trades.
Questrade Democratic Pricing - 1 cent per share, $4.95 min / $9.95 max FAQs
Home
Disclaimer
Learning Topics
Contact Us
FAQ Archive

What does the term intrinsic value mean?

Intrinsic value is the portion of a warrant, right or call option price that represents the amount by which the market price of the underlying security exceeds that price at which the warrant, right or call option may be exercised. The intrinsic value of a put option is the amount by which the underlying security’s market value is below the price at which the put can be exercised.

Several descriptions are used in the options market as a short form for referring to options that have an intrinsic value:

  • “in-the-money” refers to a call option with a strike price below the market value of the underlying security;
  • “out-of-the-money” refers to a call option with a strike price above the market value of the underlying security; and,
  • if the price of the underlying security is the same as the strike price, the option is “at- the-money”.

With regard to a put, “in-the-money” refers to a put with a strike price above the market value of the underlying security, while “out-of the-money” refers to a put with a strike price below the price of the underlying security.