What Is the Difference between an Option’s Intrinsic and Extrinsic Value?
Intrinsic value is the in-the-money (ITM) portion of an option's premium, representing the immediate profit if exercised. It is the difference between the underlying price and the strike price.
Extrinsic value (or time value) is the remaining portion of the premium, representing the value derived from time to expiration and implied volatility. Extrinsic value decays over time (Theta decay) and is the only value for at-the-money (ATM) and out-of-the-money (OTM) options.
Glossar
Intrinsic Value of a Call Option
Valuation ⎊ The intrinsic value of a call option, within cryptocurrency derivatives, represents the immediate profit obtainable through exercising the option, calculated as the difference between the underlying asset’s current market price and the option’s strike price, provided the market price exceeds the strike.
Extrinsic Value
Volatility ⎊ This component represents the portion of an option's premium driven by market uncertainty regarding the underlying crypto asset's future price movement.