Why Does an OTM Option Only Have Extrinsic Value? ⎊ Path

Why Does an OTM Option Only Have Extrinsic Value?

An Out-of-the-Money (OTM) option has no intrinsic value because exercising it immediately would result in a loss. For a call, the strike price is above the current market price; for a put, the strike price is below the current market price.

Therefore, the entire premium of an OTM option is composed of its extrinsic value (time value), which represents the possibility that the asset price will move favorably before expiration, allowing the option to become profitable.

Can an Option Have Extrinsic Value but Zero Intrinsic Value?

What Does “Out-of-the-Money” (OTM) Imply about an Option’s Intrinsic Value?

What Is the Relationship between an option’S’intrinsic value’And Its’extrinsic Value’?

How Does an option’S’premium’ Relate to Its Intrinsic and Extrinsic Value?

What Are the Main Components of an Options Premium (Intrinsic and Extrinsic Value)?

What Is the Difference between “In-the-Money” and “Out-of-the-Money” Options?

How Does Intrinsic Value Relate to an Option’s Premium?

Define “Intrinsic Value” and “Extrinsic Value” of an Option