Explain the Concept of “Intrinsic Value” for an Option on an Underlying Asset

Intrinsic value is the immediate profit a trader would realize if they exercised the option immediately. For a call option, it is the difference between the underlying asset's price and the strike price (if positive).

For a put option, it is the difference between the strike price and the underlying asset's price (if positive). If the option is out-of-the-money, the intrinsic value is zero.