Intrinsic Value and Extrinsic Value | Options Trading For Beginners

Every option's price consists of the sum of its intrinsic value and extrinsic value.

A call's intrinsic value is the difference between the stock price and the call's strike price (when the call is in-the-money). A put's intrinsic value is the difference between the put's strike price and the stock price (when the put is in-the-money).

An option's extrinsic value is any value in the option's price that exceeds its intrinsic value. Extrinsic value is sometimes referred to as "time value," and can be conceptualized as the value associated with the potential for that option to become valuable before expiration.

Additionally, we've included four visualizations of real call and put examples to demonstrate how intrinsic and extrinsic value change relative to shifts in the stock price.

Lastly, we discuss the factors that determine how much extrinsic value an option has.

[JC-brnm]

Explained much better than other channels by far, i am a visual person, so the graphs were invaluable, thanks!!

[tjkoker]

I was told that when a Put Option contract stock price rises there is nothing you can do but pray it comes back down before the buyer exercises his rights. Your explanation of Extrinsic value hints that you can sell your Put Option and possibly escape with the remaining Extrinsic value in your pocket. Am I wrong? I am brand ne win this arena and so glad I found your channel. I paid over $8000.00 to gain entrance into an options / stocks training program and I find your videos far more educational. Cheers.

[michellelopez]

Short, Simple, and easy to understand thank you I finally got it after trying to find a good video that isn’t unnecessarily long

[elmedinastafa]

Compared to other videos, this one does the best job in explaining it thoroughly using examples. Really helped out.

[chaging]

Great job on explaining the difference between intrinsic value and extrinsic value...
Thanks...

[arfst]

Made me see things a lot clearer now! You explained so simply but it packs a big punch!!! Thanks so much Chris!

[adrianoh]

Thank you for the presentation’s clarity n patience shown in the explanation. Just excellent 👍

[lisabreed]

very well explained. visuals really helped me by demonstrating the concepts. thanks!

[JoseGarcia-krxx]

kid, you have done a BADASS job stuff the novice trader can learn....great hook up the good

[MrBowlzi]

Thanks. I find your presentation of graphs and text better in this older explanation than your more recent . This is mainly because the gradual display of words and slow drawing of graphs detracts from what you are saying (as it is not typing at the same speed so i am attempting read it as you are speaking but they are out of sync) . Where as full display of all text at start allows me to concentrate on what you say and read it at same time. I can also pause, take text in, and then listen to your explanation.
All this is important for me as i am really just beginning and find it hard when there are visual distractions. It is easy for you to understand it as you don't need to concentrate to grasp new concepts and shorthand etc.

[pramilakoli]

Very useful. Soo much of clarity while explaining!

[shaileshpatel]

Very good explanations, I am so happy to watch

[wiseman]

When buying a call option or put option what ia a good intrinsic value a 0.22 is it too low or do i want it to be 1.20 instead or higher. What minimum intr value i should look for when buying? Great Video!

[morningwaves]

Yes, please use more graphs and text, makes things much clearer and allow for pausing to digest the concepts.

[Raphael-Joseph]

Could you please make a video on extrinsic value in seller perspective? I really need to understand it

[NimaZabihi]

Hi, thanks for the great video.
What happens if I don't close my put Option Through the Expiration Date? My short Put strike price is 760 and the stock price is 930. In my profile, it shows a negative profit now and the expiration date is 17June.

[mikefreeman]

Thanks for the free videos Chris. They are really helpful.
Do you know how to calculate which $ part of the extrinsic value is from time decay (remaining days) and which $ part is from implied volatility? I’ve previously watched your Implied volatility basics video with the square root formula but missing the time decay part. Maybe something with theta? I’m trying to build a model in Excel to calculate the premium value at each each day until expiration and be able to change variables like IV% to simulate the remaining premium value. My goal is to sell options and collect premiums.
Thanks again :)

[sivucit]

Hi, Excellent Video. Great content.


I would appreciate if you can help me understand the below one.
1) Does intrinsic value and Delta have any relationship?. Lets say my intrinsic value is 3(500 strike, underlying stock is 503) and i am doing call. so intrinsic value is 3, currently Delta for this option is .60. Not sure how this delta will impact intrinsic value when the stock goes up by 506 from 503.


2) Lets say the call premium i paid is 2 dollar for (10 strike with underlying stock price is 9) and I am doing call. This means the intrinsic value is 0 and extrinsic value is 2. keeping Theta and other greeks out for simplicity.. Lets say within next few minutes the the stock went to 20 from 9. Can I assume my premium will be atleast 11 dollar(ie 20 -9) which is intrinsic value. I assume yes, if so what is delta role will it be part of extrinisic value?

[Smokez]

Well explained as ever, thank you very much

[dominickdelgado]

So if I had a buy call option with a strike price of $47 initially out of the money and the stock is worth $70 now but still has a few more months till expiration and is very bullish stock should I exercise stock and sell stocks back or sell contracts close to when expiration is near?