what is intrinsic value in options

In options trading, intrinsic value refers to the difference between the current price of the underlying asset and the strike price of the option. It is the value of an option if it were exercised immediately. Intrinsic value is a measure of an options profitability based on the strike price versus the stock's price in the market. Only in-the-money options have intrinsic value, meaning that the underlying security's price is higher than the strike price for call options and lower than the strike price for put options. Intrinsic value is one of the two components that make up an option's premium, the other being time value. Time value is based on the underlying asset's expected volatility and time until the option's expiration. While intrinsic value is a measure of an option's profitability, it does not include the premium the investor has to pay to buy the option.