Extrinsic Value


DEFINITION of 'Extrinsic Value'

The difference between an option's market price and its intrinsic value. In theory, options should not trade above their intrinsic value due to the time value associated with option pricing.

Extrinsic value is also the portion of an item's worth that is assigned to it by external factors. The opposite of extrinsic value is intrinsic value, which is the inherent worth of an item.

BREAKING DOWN 'Extrinsic Value'

For example, an option that has a premium price of $10 and an intrinsic value of $6 would have an extrinsic value of $4. Denoting the amount by which the option's price is greater than the intrinsic value, all else equal, the extrinsic value of the option declines as its expiration date draws closer.
A piece of residential real estate would have intrinsic value based on factors such as its age, condition, square footage and location. The fact that it is the seller's childhood home is part of the home's extrinsic value, and will not be factored into the price a buyer will pay for the home. In this situation, the extrinsic value of the home cannot be conveyed to any buyer except, perhaps, another family member.

  1. Full Value

    The total worth of a financial instrument or organization. Full ...
  2. Expected Value

    Anticipated value for a given investment. In statistics and probability ...
  3. Market Approach

    A method of determining the appraisal value of an asset based ...
  4. Perceived Value

    The worth that a product or service has in the mind of the consumer. ...
  5. Option

    A financial derivative that represents a contract sold by one ...
  6. Intrinsic Value

    Intrinsic value is the actual value of a company or an asset ...
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