Intrinsic Value


DEFINITION of '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

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  2. Full Value

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  3. Perceived Value

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

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  5. Value Investing

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

    A method of evaluating a security that entails attempting to ...
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  1. Why should I consider buying an option if it's out-of-the-money?

    One situation when a trader may want to buy an out-of-the-money option is to hedge a stock position. A trader may want to ... Read Full Answer >>
  2. What can cause an asset to trade below its market value?

    An asset may trade below its market value due to a lack of demand for the asset in the marketplace, a perception or belief ... Read Full Answer >>
  3. What happens when a security reaches its strike price?

    In the derivatives market, moneyness describes the situation in which a derivative is either in the money, at the money or ... Read Full Answer >>
  4. How does fundamental analysis differ from technical analysis?

    Technical analysis and fundamental analysis are two distinct approaches to equity investment. Fundamental analysis is typically ... Read Full Answer >>
  5. If the intrinsic value of a stock is significantly lower than the market price, should ...

    Though a stock with a significantly lower intrinsic value than current market price may indicate the stock is overvalued, ... Read Full Answer >>
  6. How do I use the news to find arbitrage opportunities?

    Traders can use the news to identify special arbitrage trading opportunities known as risk arbitrage. Two types of risk arbitrage ... Read Full Answer >>
  7. What is the difference between intrinsic value and current market value?

    There is a significant difference between intrinsic value and market value. Intrinsic value is an estimate of the actual ... Read Full Answer >>

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