Options Trading, Uncovered Options, Naked Options, Intrinsic Value, options Value, Trading Strategy, system, options

Intrinsic Value and Extrinsic Value

Intrinsic Value

An option has intrinsic value when it is in-the-money. For an in-the-money call the intrinsic value is equal to the underlying asset price less the strike price. For an in-the-money put, the intrinsic value is equal to the strike prices less the underlying asset price. An option has no intrinsic value if it is out-of-the-money; its extrinsic value is equal to the price of the option.

Extrinsic Value

The time value of an option is the Extrinsic Value. The Extrinsic Value equals the option price minus the intrinsic value of the option. Out-of-the-money options are composed entirely of extrinsic value, which have no intrinsic value.

The price at which an option can be exercised, is the Strike Price. The right to buy the underlying asset at the strike price is a call. The right to sell the underlying asset at the strike price is a put.

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DISCLAIMER: THIS INFORMATION IS INTENDED FOR EDUCATIONAL PURPOSES ONLY AND DOES NOT CONSTITUTE ANY FINANCIAL ADVICE. RISK IS INVOLVED IN ALL STYLES OF MONEY MANAGEMENT. Uncovered options trading involves greater risk than stock trading. You absolutely must make your own decisions before acting on any information obtained from this Website.

The return results represented on the web site are based on the premium received for the selling options short and do not reflect margin. It is recommended to contact your broker about margin requirements on uncovered options trading before using any information on this web site. Use our "Trade Calculator" to recalculate our past performance in relation to the margin requirements, brokerage commissions and other trading related expenses. Past performance is not indicative of future results.