What is 'Intrinsic Value'
Intrinsic value is the perceived or calculated value of a company, including tangible and intangible factors, using fundamental analysis. Also called the true value, the intrinsic value may or may not be the same as the current market value. Additionally, intrinsic value is also used in options pricing to indicate the amount that an option is "in the money."
BREAKING DOWN 'Intrinsic Value'
Intrinsic value can be calculated by value investors using fundamental analysis to look at both qualitative (business model, governance, and target market factors) and quantitative (ratios and financial statement analysis) aspects of a business. This calculated value is then compared to the market value to determine whether the business or asset is over or undervalued.
The discounted cash flow (DCF) model is one commonly used valuation method used to determine a company's intrinsic value. The discounted cash flow model uses a company's free cash flow and weighted average cost of capital (WACC), which accounts for the time value of money, and then discounts all its future cash flow back to the present day.
[Intrinsic value is a core concept of value investors seeking to uncover hidden investment opportunities. In order to calculate intrinsic value, you need to have a strong understanding of fundamental analysis. Investopedia's Fundamental Analysis Course will show you how to calculate the true value of a stock and capitalize on undervalued opportunities. You'll learn how to read financial statements, use ratios to quickly determine value, as well as learn other techniques used by professionals in over five hours of ondemand videos, exercises, and interactive content.]
Intrinsic Value of Options
The intrinsic value of call options is the difference between the underlying stock's price and the strike price. Conversely, the intrinsic value of put options is the difference between the strike price and the underlying stock's price. In the case of both call and put options, if the calculated value is negative, the intrinsic value is given as zero. Intrinsic value and extrinsic value combine to make up the total value of an option's price. The extrinsic value, or time value, takes into account the external factors that affect an option's price, such as implied volatility and time value.
Intrinsic Value of Options Examples
Intrinsic value in options is the inthemoney portion of the option's premium. For example, if a call option's strike price is $15 and the underlying stock's market price is $25 a share, then the intrinsic value of the call option is the stock price less the strike price, or $25  $15, so $10. Assume the option was purchased for $12, so the extrinsic value is the purchase price of the strike less the intrinsic value, or $12  $10, so $2. An option is usually never worth less than what an option holder can receive if the option is exercised.
On the other hand, assume an investor purchases a put option with a strike price of $20 for $5, when the underlying stock was trading at $16 a share. Therefore, the intrinsic value of the put option is the strike price less stock price, or $20  $16, so $4; and the extrinsic value is the purchase price of the strike less the intrinsic value, or $5  $4, so $1.
Now, let's assume that an investor purchases a put option with a strike price of $15 for 50 cents when the underlying stock was trading at $16. The strike price less the stock price, or $15  $16, is negative, therefore, the intrinsic value would be $0 because the option is out of the money. However, the option still has value, which only comes from the extrinsic value, the purchase price less the intrinsic value, or 50 cents  $0, which is 50 cents.

Sell to Close
Sell to close is an options trading order that is used to exit ... 
Extrinsic Value
The difference between an option's market price and its intrinsic ... 
Margin Of Safety
Margin of safety is an investing principle in which an investor ... 
Deep In The Money
A deep in the money option has a strike price significantly below ... 
Put Option
A put options gives the owner the right to sell a specified amount ... 
LargeValue Stock
A largevalue stock is the stock of a large company where the ...

Trading
The Basics Of Option Price
Learn how options are priced, what causes changes in the price, and pitfalls to avoid when trading options. 
Trading
The Options Premium
An options premium is the amount of money that investors pay for a call or put option. The two components that affect options pricing are the intrinsic value and time value. Matthew is interested ... 
Trading
Understanding The Options Premium
The price of an option, otherwise known as the premium, has two basic components: intrinsic value and time value. 
Trading
The importance of time value in options trading
Move beyond simply buying calls and puts, and learn how to turn timevalue decay into potential profits. 
Trading
Should Employees Be Compensated With Stock Options?
Learn the good, the bad and the ugly sides of this type of payout. 
Trading
A Newbie's Guide to Reading an Options Chain
Learning to understand the language of options chains will help you become a more effective options trader.

Intrinsic Value vs Current Market Value
Discover the differences between intrinsic and market values, what makes the former difficult to determine, and how investor ... Read Answer >> 
If the intrinsic value of a stock is significantly lower than the market price, should ...
Discover how the intrinsic value and market price of a stock are related and why a stock that appears overvalued may still ... Read Answer >> 
What is the difference between in the money and out of the money?
Learn how the difference between in the money and out of the money options is determined by the relationship between strike ... Read Answer >>