What is the intrinsic value of an option, what is the time value and intrinsic value of an option

Premiums are made up of intrinsic value (also known as intrinsic value) and time value. The intrinsic value of an option is determined by the exercise of the option contract in relation to the underlying market, which means that the option buyer can sell the proceeds of the underlying on better terms than the existing market. Intrinsic value can only be positive or zero.

Only in-the-money options have intrinsic value, and neither at-the-money options nor out-of-the-money options have intrinsic value.

Intrinsic value of an in-the-money call option =

The current target.

Option strike price.

Intrinsic value of an in-the-money put option =

Option strike price.

Target****.

Example: On May 18, 2018, the intrinsic value of the in-the-money call options and in-the-money put options of the current May 50 ETF.

1. The intrinsic value of the in-the-money call option.

The current market of 50 ETF ** is, 50 ETF buy May 2600, in-the-money call option intrinsic value =

50ET purchase May 2950, because the current underlying 50ETF ** is less than the option exercise ** (<, it is an out-of-the-money option, so it has no intrinsic value and is zero.

2. The intrinsic value of an in-the-money put option.

The current market of the 50 ETF is that the 50 ETF sells at May 2750, and the intrinsic value of the in-the-money put option =

50ETF sell May 2600, because the option exercise ** is less than the current underlying 50ETF **(<, it is an out-of-the-money option, so it has no intrinsic value and is zero.

The picture above is a screenshot of the option column of AVIC**Zhicheng Edition**).

First of all, we need to knowThe ** of an option is mainly composed of two parts: intrinsic value and time value, the details are as follows:

1. Connotative value

Intrinsic value refers to the total profit that can be made if the contract is performed immediately. Specifically, it can be divided into in-the-money options, out-of-the-money options, and two-flat options.

1) In-the-money options.

A call option is in-the-money when it is exercised lower than it is actual at that time, or when it is exercised higher than it is actually at that time.

2) Out-of-the-money options.

A call option is out-of-the-money when the exercise is higher than the actual strike at the time, or when the strike of the put option is lower than the actual strike at the time. When an option is out-of-the-money, the intrinsic value is zero.

3) Two-Flat Options.

When the strike of a call option is equal to the actual at that time, or when the exercise of a put option is equal to the actual at that time, the option is a two-even option. When an option is a two-way option, the intrinsic value is zero.

2. Time value

The longer the option is from the expiration date, the greater the likelihood of a large change, and the greater the chance that the option buyer will make a profit by exercising the option. The buyer of an option should pay a higher premium for a longer option than for a shorter option.

It is worth noting that the relationship between the premium and the maturity time is a non-linear relationship, rather than a simple multiple relationship.

The time value of an option decreases as the expiration date approaches, and the time value of the option's expiration date is zero.

The time value of an option reflects the time risk and volatility risk during the option trade, and the time value of the option is zero when the contract is 0% or 100% exercised.

Time value of option = option ** - intrinsic value.

3. The difference between in-the-money options, out-of-the-money options and two-flat options

The intrinsic value of out-of-the-money options and two-flat options is zero.

The time value of the expiration date is zero.

The intrinsic value of an option refers to the economic value of the option resulting from its immediate exercise.

The time value of an option, also known as extrinsic value, refers to the value of the premium paid by the purchaser of an option contract for the purchase of an option that exceeds the intrinsic value of the option. The time value of the option is related to the remaining term of the transfer, the historical volatility of ****, and the current level of ****: the longer the remaining time of the transfer, the greater the change, and the higher the time value of the option; **The higher the volatility, the higher the time value of the option; If the stock price is too high or too low, the lower the time value of the option.

The intrinsic value of an option is the present value of the return that can be obtained when the option is exercised by multiple parties. Option** = Intrinsic Value of Option + Time Value of Option.

The ** of an option can be divided into two parts: intrinsic value and time value.

The intrinsic value of an option is the value of the option when it is exercised immediately (i.e., assuming it is an American-style option).

Intrinsic value of option iv = max(0, s-x) Intrinsic value of sell option iv = max(0, x-s) where s is the current market price and x is the strike price.

Option Value = Intrinsic Value + Time Value. Intrinsic value means that the value of an option can only be positive or zero if it is exercised immediately.

Time value refers to the possibility that the underlying of the contract will change in favor of the option right holder during the remaining validity period of the option.

The main factors that affect the change of option value are as follows:

1) Changes in the underlying assets**;

2) changes in the volatility of the underlying asset;

3) a reduction in the remaining duration of the option;

4) Changes in dividends of the underlying assets;

5) Exercise**.

Hello, option value consists of two parts: intrinsic value and time value.

1. The concept is different: the option value is that the value of the convertible bond will usually exceed the pure bond value and the conversion value. The intrinsic value of an option is the present value of the return that can be made when the option is exercised by multiple parties.

2. The formula is different: the intrinsic value of the option is the option ** = the intrinsic value of the option + the time value of the option. Option Value = Embedded Value + Time Value.

3. The intrinsic value is different: the intrinsic value of the option is the part of the value of the option that reflects the relationship between the finalization of the rubber code right and the current value. The intrinsic value of an option is the value at which the option is exercised immediately (i.e., assuming it is an American-style option).

For example, if the market price of a call option is 50$ per share, and the search type of a call option with this ** as the underlying asset is finalized at 45$ per share, if the trading unit of this call option is 100 shares, then, exercise immediately, i.e., finalize **100 shares ** at **45$ per share**, and then sell ** market **50$ per share] The intrinsic value of this call option is equal to 100*(50-45)=500$

The time value of an option is the value of the premium actually paid by the option purchaser to purchase the option in excess of the intrinsic value of the option.

It has to do with the remaining term and intrinsic value. Generally speaking, the longer the remaining period, the greater the value of time; However, when the option approaches its expiration date, all other things being equal, the time value decreases faster and gradually tends to zero.

The intrinsic value and time value of an option are two key factors in the pricing of an option.

Intrinsic value is the actual value of the option, which represents the profit that the option could make if it were exercised immediately. For call options, the intrinsic value is the underlying asset** minus the option strike price, and if the intrinsic value is positive, the call option is profitable. For a put option, the intrinsic value is the strike price of the option minus the underlying asset**, and if the intrinsic value is positive, the put option is profitable.

If the intrinsic value is negative, it means that the option has no room to make a profit, and can only wait for the future change of the underlying asset**.

The time value is the part of the option** other than the intrinsic value, which is the insurance premium paid by the buyer of the option. Time value is the effect of the time remaining before the expiration of the option on the option**. The time value gradually decreases as the option expires until the time of expiration is zero.

Understanding the intrinsic value and inter-temporal value of options is important for both the buyer and seller of options. For options buyers, understanding intrinsic value and time value can help them decide if and when. For option sellers, understanding the intrinsic value and time value of the fight can help them decide on the pricing strategy and timing of the option.

In options trading, intrinsic value and time value are both important factors that affect options** and returns.