Intrinsic Value


What is 'Intrinsic Value'

Intrinsic value is: 1. The actual value of a company or an asset based on an underlying perception of its true value including all aspects of the business, in terms of both tangible and intangible factors. This value may or may not be the same as the current market value. Value investors use a variety of analytical techniques in order to estimate the intrinsic value of securities in hopes of finding investments where the true value of the investment exceeds its current market value.

2. For call options, this is the difference between the underlying stock's price and the strike price. For put options, it is the difference between the strike price and the underlying stock's price. In the case of both puts and calls, if the respective difference value is negative, the intrinsic value is given as zero.


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BREAKING DOWN 'Intrinsic Value'

1. For example, value investors that follow fundamental analysis look at both qualitative (business model, governance, target market factors etc.) and quantitative (ratios, financial statement analysis, etc.) aspects of a business to see if the business is currently out of favor with the market and is really worth much more than its current valuation.

2. Intrinsic value in options is the in-the-money portion of the option's premium. For example, If a call options strike price is $15 and the underlying stock's market price is at $25, then the intrinsic value of the call option is $10. An option is usually never worth less than what an option holder can receive if the option is exercised.

  1. Market Value

    The price an asset would fetch in the marketplace. Market value ...
  2. Full Value

    The total worth of a financial instrument or organization. Full ...
  3. Perceived Value

    The worth that a product or service has in the mind of the consumer. ...
  4. Value Investing

    The strategy of selecting stocks that trade for less than their ...
  5. Fundamental Analysis

    A method of evaluating a security that entails attempting to ...
  6. Extrinsic Value

    The difference between an option's market price and its intrinsic ...
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