Intrinsic value - Definition and Overview

Intrinsic value in general, is the argument that the value of a product is intrinsic within the product rather than dependent on the buyer's perception.

In options terminology, an option has intrinsic value, if it is in-the-money. The intrinsic value is the positive difference between the current price for the underlying and the strike price of an option. For a call option the strike price has to be under the price of the underlying; for a put option the strike price has to be over the price of the underlying.

For example, if the strike price for a call option is USD 1 and the price of the underlying is USD 1.20, then the option has an intrinsic value of USD 0.20. Options are usually sold for their intrinsic value plus their time value. See Option time value.

In numismatics, intrinsic value is the value of the metal, typically a precious metal, in a coin. For example, if gold trades at a price of USD 450 per fine troy ounce, a coin minted from one troy ounce of fine gold would have an intrinsic value of USD 450. When the intrinsic value becomes greater than the face value, the coins are in danger of being removed from circulation in large numbers. When the coin is in use as money this effect can, at the margin, mitigate forces that might otherwise cause inflation. When copper prices skyrocketed in the mid-to-late 1970s, there was a fear that the U.S. one-cent piece might succumb to this fate, leading the Mint to change the composition of the cent in 1982.

See also

• Marginal theory of value
• Labor theory of value
• Options