# Intrinsic Value of Options: Definition and How to Calculate

*Stock Market Guides is not a financial advisor. Our content is strictly educational and should not be considered financial advice.*

If you're trying to understand what the intrinsic value of options is referring to, then you are not alone.

Many people consider options to be one of the most complex investment vehicles available in the stock market, and for good reason since there are many factors that influence their valuations.

## Intrinsic Value Is One Component of an Option's Value

For any given option that is available in the stock market, it's value is made up of exactly two components: intrinsic value and extrinsic value.

Here is an equation to show their relationship:

*Option Price = Intrinsic Value + Extrinsic Value*

This means that intrinsic value is a core factor in determining any given option's price.

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## Intrinsic Value Definition

The meaning of intrinsic value is as follows:

*Intrinsic value is the amount that an option is in the money, which also represents what the option would be worth if it expired at any given moment.*

This video about intrinsic value might help improve your understanding:

## Intrinsic Value Equation

The intrinsic value for call options is calculated as follows:

*For call options, if the stock price is above the strike price, the intrinsic value is equal to the stock price minus the strike price. Otherwise, the intrinsic value is zero.*

The intrinsic value for put options is calculated as follows:

*For put options, if the stock price is below the strike price, the intrinsic value is equal to the strike price minus the stock price. Otherwise, the intrinsic value is zero.*

As an Excel formula, the intrinsic value of a call option would be this:

*=if (Stock Price > Strike Price, Stock Price - Strike Price, 0)*

As an Excel formula, the intrinsic value of a put option would be this:

*=if (Stock Price < Strike Price, Strike Price - Stock Price, 0)*

## Intrinsic Value Example

Imagine that you're looking at Apple and considering buying a call option for it.

Imagine Apple stock is selling for $105, and that you are looking at a 100 strike call option for Apple. It doesn't matter which expiration you're considering when it comes to calculating the intrinsic value of an option.

In this case, to get the intrinsic value, we simply take the stock price of $105 and subtract the strike price of $100.

That leaves us with an intrinsic value of $5.

That means if the stock price was $105 at the time of expiration, the value of the option would be $5. At expiration, the only value of the option is its intrinsic value.

Using that same example, if the strike price of the option were $110, then the intrinsic value would be zero since the strike price is higher than the stock price.

When an option has a positive intrinsic value, it is said to be in the money. When is has no intrinsic value, it can be either at the money or out of the money.

## Learning More About Intrinsic Value and Options

If you need more help getting up to speed on options and how intrinsic value works, take a look at our guide to options trading for beginners.

If you'd rather leave it to the pros but still want good option investment ideas, you can consider signing up for our options alert service.

You can contact us any time if you would like to ask any questions about intrinsic value or about options in general.

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