What is intrinsic value of the option? How to calculate intrinsic value of an option?

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Intrinsic value of an Option is the amount by which the strike price of an option is in-the-money. It is also considered as the value of an Option if it were exercised today.

For Call option

Intrinsic value = Current price of underlying - Strike Price

For Put Option

Intrinsic value = Strike Price - Current price of underlying

For example, you hold a Reliance Call Option at 900 and the current price of the stock is 920 then the intrinsic value of your Option will be:

920-900= Rs 20

Please note that the Intrinsic value of an underlying can either be positive or zero. It cannot be negative.

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