What Is the Difference between Intrinsic Value and Extrinsic Value in Options Pricing? ⎊ Path

What Is the Difference between Intrinsic Value and Extrinsic Value in Options Pricing?

Intrinsic value is the immediate profit if the option were exercised now. It is zero for OTM options.

Extrinsic value, or time value, is the portion of the premium based on the time remaining until expiration and the volatility of the underlying asset. The option premium is the sum of these two values.

As the expiration date approaches, the extrinsic value decays to zero.

What Is the Concept of ‘Extrinsic Value’ in Option Pricing?

Define ‘Intrinsic Value’ and ‘Time Value’ in the Context of an Option Price

What Is “Extrinsic Value” or “Time Value” in an Option’s Premium?

Define “Extrinsic Value” and How It Relates to Time Decay

How Does the Premium Relate to the Intrinsic and Extrinsic Value of an Option?

How Does the Concept of ‘Time Decay’ Impact OTM Options versus ITM Options?

Define the Term ‘Option Premium’ in the Context of Derivatives Trading.

How Does Time Value (Extrinsic Value) Relate to an Option’s Total Premium?

Glossar

Extrinsic Value in Options

Component ⎊ Extrinsic Value in Options represents the portion of an option's total premium that exceeds its intrinsic value, reflecting the market's expectation of the underlying asset's future price movement and the time remaining until expiration.

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.