Home > Intrinsic value

Intrinsic Value

Intrinsic value refers to the true or inherent value of an asset, such as a stock or option, based on its underlying fundamentals, rather than its current market price. For options, intrinsic value is the difference between the underlying asset’s current price and the option’s strike price. In fundamental analysis, intrinsic value is calculated by evaluating a company’s financial statements, growth potential, and future cash flows to determine whether a stock is overvalued or undervalued.

Example

If a stock option has a strike price of $50 and the stock is currently trading at $55, the option has an intrinsic value of $5.

Key points

• Refers to the inherent or true value of an asset based on its fundamentals.

• For options, intrinsic value is the difference between the current price and strike price.

• Used in fundamental analysis to determine if a stock is over- or undervalued.

Quick Answers to Curious Questions

Intrinsic value in options is the difference between the underlying asset’s price and the option’s strike price, representing the option's real value.

It is calculated by evaluating a company’s financials, growth potential, and future cash flows to estimate the true value of its stock.

It helps investors determine whether an asset is overvalued or undervalued, guiding investment decisions.