Intrinsic value is the in-the-money component of an option's total premium. It represents the profit you would receive if you exercised the option right now, ignoring any time value.
For a put option: Intrinsic Value = Strike Price − Current Stock Price (if positive; otherwise zero).
For a call option: Intrinsic Value = Current Stock Price − Strike Price (if positive; otherwise zero).
OTM and ATM options have zero intrinsic value. Their entire premium is extrinsic value (time and volatility).
Why It Matters for Rolling: When a short put goes deep ITM, it accumulates intrinsic value that is expensive to buy back. Rolling a deep ITM put requires paying that intrinsic value to close the position, which is why rolling for a net credit becomes harder the deeper in-the-money the option goes.
Examples of Intrinsic Value in Action
- 1A $100 strike put with the stock at $93 has $7.00 of intrinsic value per share ($700 per contract).
- 2A $150 covered call with the stock at $165 has $15.00 of intrinsic value — rolling this CC up and out for a credit is very difficult.
- 3An OTM $110 put with the stock at $115 has zero intrinsic value — the full $1.50 premium is extrinsic value.