Intrinsic value

The intrinsic value of an option is the current price of the underlying security minus the exercise price. It is the amount of money a holder of the derivative would make if the option was exercised immediately (even if the option is not actually exerciseable immediately).

The value of an option is likely to be different from the intrinsic value, the difference is the called the option value.

In general, the higher the intrinsic value of an option the lower the option value as it becomes less likely that the option will not be exercised.

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