Can an Option's Premium Be Less than Its Intrinsic Value? ⎊ Path

Can an Option’s Premium Be Less than Its Intrinsic Value?

No, an option's premium cannot be less than its intrinsic value. The intrinsic value is the minimum value of an option.

If the premium were less than the intrinsic value, an arbitrage opportunity would exist, allowing an immediate risk-free profit by buying the option and exercising it.

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Glossar

Immediate Risk-Free Profit

Concept ⎊ Immediate Risk-Free Profit, or arbitrage, represents the simultaneous purchase and sale of an asset or derivative across different markets or instruments to capitalize on a momentary price discrepancy.

Intrinsic Value

Valuation ⎊ This represents the in-the-money amount of an option, calculated as the difference between the spot price and the strike price, if positive, otherwise zero.