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Intrinsic Value

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The actual value of a security, as opposed to its market or book value, is the intrinsic value of the security. Intrinsic value may differ from market value because of brand names, patents and other intangibles that are difficult for investors to quantify. There are various approaches but no standard formula for calculating the intrinsic value of an asset. The concept of intrinsic value is also used in options trading where intrinsic value measures the amount by which the option is in the money. A call option's intrinsic value is calculated by subtracting the strike price of the call option from the market price of the underlying security. A put option's intrinsic value is measured by subtracting the market price of the underlying security from the strike price of the put option.



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