INTRINSIC VALUE AND

TIME VALUE OF
OPTIONS
SUBMITTED BY
RATHIKA K
BMCO52035
INTRINSIC VALUE OF OPTIONS

 An option’s intrinsic value is the payoff the buyer would receive if they exercised the
option right now.
 The intrinsic value is how profitable the option would be, based on the difference
between the contract’s strike price and the market value of the underlying security
Formula for the Intrinsic Value of an Options Contract

 To calculate the intrinsic value of a call option:

 Call Option Intrinsic Value=USC−CS
SC=Underlying Stock’s Current Price
CS=Call Strike Price ​
 To calculate the intrinsic value of a put option:
 Put Option Intrinsic Value=S-USC
SC=Underlying Stock’s Current Price
PS=Put Strike Price ​
TIME VALUE OF OPTIONS

 The opportunity for an option to be profitable over time is, in essence, its time value.
 Time value is often explained as the amount an investor is willing to pay for an option
above its intrinsic value. 
Formula for the Time Value of an Options Contract

 Time Value=Option Price−Intrinsic Value

THANK YOU