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 the 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 with 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 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 minus $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 minus $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 minus $16, so $4; and the extrinsic value is the purchase price of the strike less the intrinsic value, or $5 minus $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 minus $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 minus $0, which is 50 cents.

Time Value
The portion of an option's premium that is attributable to the ... 
Sell to Close
Sell to close is an options trading order that is used to exit ... 
Out Of The Money (OTM)
An out of the money option has no intrinsic value, but only possesses ... 
Strike Price
Strike price is the price at which the underlying asset of a ... 
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 ...

Investing
What Is The Intrinsic Value Of A Stock?
Intrinsic value can be subjective and difficult to estimate. It’s a perception of a security’s value that factors tangible and intangible factors. 
Investing
What Is The Intrinsic Value Of A Stock?
Intrinsic value reduces the subjective perception of a stock's value by analyzing its fundamentals. 
Trading
Understanding Option Pricing
Before venturing into the world of trading options, investors should have a good understanding of the factors determining the value of an option. 
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
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 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 ... 
Investing
Discounted Cash Flow (DCF)
Discover how investors can use this valuation method to determine the intrinsic value of a stock. 
Financial Advisor
Is Texas Instruments a Good Value Play? (TXN)
Find out whether investors and analysts believe that Texas Instruments would make a good value play at its current valuation, and learn more about its outlook.

What occurs when a security meets its strike price?
Learn more about the moneyness of stock options and what happens when the underlying security's price reaches the option ... Read Answer >> 
When is a call option considered to be "in the money"?
Learn about call options, their intrinsic values and why a call option is in the money when the underlying stock price is ... Read Answer >> 
How do I calculate stock value using the Gordon Grown Model in Excel?
Learn about the Gordon Growth Model, also known as the dividend discount model. See how to use Microsoft Excel to determine ... Read Answer >> 
When is a put option considered to be 'in the money?'
Learn about put options, how these financial derivatives work, and when put options are considered to be in the money related ... Read Answer >>