Intrinsic Value
Intrinsic value is the portion of an option’s premium that would be realized if it were exercised right now — how far in-the-money it is.
For a call, intrinsic value is max(spot − strike, 0); for a put it is max(strike − spot, 0). It can never be negative.
Any premium above intrinsic value is extrinsic (time) value. At expiration an option is worth only its intrinsic value.
Example. With the stock at $107, a 100-strike call has $7 of intrinsic value; if it trades for $8.50, the other $1.50 is extrinsic value.
FAQ
Can intrinsic value be negative?
No — intrinsic value is floored at zero; an out-of-the-money option has zero intrinsic value and only time value.
How is intrinsic value of a put calculated?
Strike price minus the underlying price, floored at zero: a 50-strike put with the stock at $45 has $5 of intrinsic value.