What Is Intrinsic Value in Options?

Intrinsic value is the part of an option’s price that comes from being in the money: what the option would be worth if you exercised it right now and immediately closed the stock position. It is never negative; an option that is at or out of the money has zero intrinsic value.

In short: for a call, intrinsic value is the stock price minus the strike, if positive. For a put, it is the strike minus the stock price, if positive. Everything in an option’s premium above intrinsic value is time value, and at expiration only intrinsic value is left.

The formulas

Call: intrinsic value = maximum of (stock price - strike, 0)
Put: intrinsic value = maximum of (strike - stock price, 0)

Worked examples

Maple Widgets Inc. (a hypothetical company) trades at $53.

Option	Calculation	Intrinsic value per share	Per contract (x 100)
$50 call	$53 - $50	$3.00	$300
$55 call	$53 - $55 is negative	$0	$0
$55 put	$55 - $53	$2.00	$200
$50 put	$50 - $53 is negative	$0	$0

If the $50 call is trading at $3.80, its premium is $3.00 of intrinsic value plus $0.80 of time value.

Why it matters

It is the floor at expiration. On the last day, an option is worth its intrinsic value and nothing more. A $50 call with the stock at $53 at the close of expiration day is worth about $3.00, or $300 a contract.

It sets a rough floor before expiration. An American-style option should not trade much below intrinsic value, because someone could buy it and exercise for a near-riskless profit. Small gaps can appear in illiquid series or with deep in-the-money puts.

It decides automatic exercise. At expiration, options that are in the money by a small threshold are normally exercised automatically. See how exercise and assignment work.

Intrinsic value is not profit

Intrinsic value ignores what you paid. If you bought that $50 call for $2.50 and it finishes with $3.00 of intrinsic value, your profit is $3.00 - $2.50 = $0.50 a share, or $50 a contract, not $300. If you paid $3.50, you lost $50 even though the option expired in the money.

Moneyness in one line

In the money means positive intrinsic value; at or out of the money means zero. The full picture, including how moneyness changes as the stock moves, is in in the money vs out of the money.