What is Intrinsic Value?
Intrinsic Value is the value of an asset based purely on the business, rather than economic situations or market sentiment. For this reason, it may be above or below the actual market value of the asset. This is useful because if you know the Intrinsic Value of an asset and it is different to the market value, this presents an opportunity to profit (assuming the market value tends to intrinsic value over time). Intrinsic Value is a key part of fundamental analysis and value investing.
The Intrinsic Value of an option is simply the difference between the current market price of the underlying asset and the strike price on the option (the lowest this can be is zero, but it does not take into account the cost of the option contract for determining profits).