What is the intrinsic value of an option?
How much of a premium is intrinsic value?
Intrinsic value is what an option would be worth if it were exercised right now. On a call it is the price minus the strike, on a put the strike minus the price, floored at zero and multiplied by the contract size. It never goes negative, because nobody exercises against themselves.
How to split a premium
Every option premium splits into two parts: intrinsic value and extrinsic value. Calculate intrinsic value first, from the strike and the current share price only, then subtract it from the premium; what remains is extrinsic value. An out-of-the-money option has no intrinsic value, so its whole premium is extrinsic. A deep in-the-money option is mostly intrinsic value with a thin layer of extrinsic value on top.
Why it decides exercise and assignment
At expiration an option is worth exactly its intrinsic value, which is why options that finish in the money are usually exercised automatically. Before expiration, exercising throws away whatever extrinsic value the option still carries; selling it in the market usually returns more. The same logic explains why early assignment on a short option becomes more likely once its extrinsic value has nearly disappeared, for example just before a dividend.
The common misreading
Intrinsic value is not profit. A call with 6 € of intrinsic value that cost 8 € is still a loss of 2 € per share if it expires there. Intrinsic value measures where the option stands against its strike, not against the price you paid for it. The profit question is answered by the break-even, which adds the premium paid to the strike of a call or subtracts it from the strike of a put.
Worked example
Hypothetical numbers for illustration, not a market quote and not a recommendation.
An example stock trades at 100 €. The 90 € call costs 12 € per share. Its intrinsic value is 100 − 90 = 10 €, so the remaining 2 € are extrinsic value. The 105 € call costs 2 €, all of it extrinsic, because its strike sits above the share price.
If the stock closes at 108 € at expiration, the 90 € call is worth its intrinsic value of 18 €, or 1,800 € per contract, a profit of (18 − 12) × 100 = 600 €. The 105 € call is worth 3 €, a profit of 100 €. Fees are ignored.
Strategies where the term matters
- Long Call — Will the move go far enough past your break-even - and get there in time?
- Protective Put — What does this insurance cost you per year, as a percentage of the position?
- Covered Call — Are you willing to hand over the shares at the call strike - even if they keep running afterwards?
Calculators for this term
Track it in your journal
Related terms
Every term in one place: the options glossary.
This material is general information about option strategies, written for a general audience. It is not investment advice, not a recommendation, and not financial analysis. Options can lose their entire value, and uncovered positions can lose more than the amount committed. Anything said about tax is general in nature and is no substitute for professional tax advice. Last reviewed: 2026-08-06.