Option Intrinsic Value Formulas

Strike price and intrinsic value

On the examples with Microsoft stock, we have explored the strike price and intrinsic value of call options and put options. To sum up and make it look a bit more scientific, let’s look at the formulas for calculating intrinsic value for calls and puts.

Calculating intrinsic value of call options

Call intrinsic value = MAX of (stock price less strike price OR zero)

Calculating intrinsic value of put options

Put intrinsic value = MAX of (strike price less stock price OR zero)

Learn the logic, not the formulas

Nevertheless, the recommendation now is: do not memorize the formulas. Instead, focus on the logic and make this logic your natural way of thinking. For example, like this:

You have a call. – You are buying the stock. – You want to buy as low as possible. – Therefore, if strike is lower, option has greater intrinsic value.

Or consider a put. – You are selling. – You want to sell as high as possible. – …

Do not memorize. Understand.


Related pages


merits and demerits of mean median modeblack scholes simplifiedinterpretation of sharpe ratiowilders moving averageblack scholes excelexcel calculations formulass&p 500 short etfgreeks calculatorformula black scholesintrinsic value call optionstandard deviation variance calculatorleveraged vix etfhow to invest in the vixtheta tradingstandard deviation example in excelkurtosistock indexingadvantages and disadvantages of a spreadsheetstrike price exercise pricediscounted dividend model excelequally weighted portfoliosample skewness formulaexcel calculations formulasexcel formula explanationsformula for sample variance in statisticsshort euro currency etfformula for mean variance and standard deviationcall option payoff graphhow is the vix calculatedcreating formulas in excelstandard deviation without calculatortechnical trading booksinception calculatorwilliam sharpe nobel prizetrading option greeksoptions puts and calls for dummiesuvxy quoteblack scholes theorymacd indicator formulameasure skewnesssharpe ratio for stockscboe intradayaverage true range stop losscumulative probability excelequally weighted portfoliosum of squares in excelleveraged etfs listintrinsic value of a put optionvalue of a call option formulaformula black scholesinverse s&p 500variance sigma squaredarithmetic mean roughnessbull spread calculatorspy spxblack scholes tutorialmacro hedge fund strategymacd divergence strategyoption greeks vegarumus total costpayoff of a call optionnormal kurtosisvxx prospectuscomputational formula for sample variancehow to measure standard deviation in excelweighted average share price calculationstatistics formula calculatordelta hedging explaineddefinition of kurtosis13f secannualize monthly standard deviationleveraged vix etfblack scholes dividend paying stockvolatility wikiyahoo finance calculatorscboe options chainwhat is the difference between futures and forwardsskewness formula for ungrouped data