9 Questions
What does the intrinsic value of an option represent?
The amount by which the option is in-the-money
Why can the intrinsic value of an option never be negative?
An option holder is not bound to exercise the option if it results in a loss
For a call option, how is the intrinsic value calculated?
$S - X$
What happens to the intrinsic value of a put option when it is in-the-money?
It becomes positive
Why would the intrinsic value of a call option have a minimum possible value of zero?
To avoid exercising under a disadvantageous condition
What does the intrinsic value of an in-the-money option indicate?
A profit for the option holder
If an out-of-the-money call option has an intrinsic value, what does this imply?
$S < X$
Why do at-the-money options have zero intrinsic value?
$S = X$
How is the intrinsic value different from the time value of an option?
'Intrinsic value' refers to real worth, 'time value' refers to potential worth
Learn about the intrinsic value of options - the amount by which an option is in-the-money before adjusting for premium paid. Discover why only in-the-money options have intrinsic value and why it can never be negative.
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