InvestorQ : What do we understand by the intrinsic value of a Put Option?
Mahima Roy made post

What do we understand by the intrinsic value of a Put Option?

Answer
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Aditi Sharma answered.
2 years ago


A put option is the right to sell an asset without the obligation to sell that asset. You agree to sell the asset at a price which is called the strike price. If the market price is below the strike price then the put option has a positive intrinsic value. If the market price is above the strike price then the put option has zero intrinsic value. Look at the formula below…

- Put Options: Intrinsic value = Call Strike Price - Underlying Stock's Current Price

- Time Value = Put Premium - Intrinsic Value

The put option payoff will be a mirror image of the call option payoff. Like in case of call options, even in case of put options, the OTM and ATM options will have zero intrinsic value. The only difference is that the intrinsic value of a put option increases as the market price of the stock keeps falling.