Does IV Affect the Intrinsic Value of an Option?
No, implied volatility (IV) does not directly affect the intrinsic value of an option. Intrinsic value is purely a function of the underlying asset's current price and the option's strike price.
IV only affects the time value (extrinsic value) component of the option's premium.
Glossar
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.
Implied Volatility
Expectation ⎊ This value represents the market's consensus forecast of future asset price fluctuation, derived by reversing option pricing models using current market premiums.
Time Value
Component ⎊ Time value, also known as extrinsic value, is a component of an option's premium that reflects the probability of the underlying asset's price moving favorably before the option expires.