This article will show you how to calculate the intrinsic value of your options. At the same time showing you how to communicate with other options traders, when discussing trade with them.
1.)To even begin to calculate the intrinsic value of any option you must know and understand your rights as options owners. A buyer of a call option has the right, but not the obligation to buy a stock for a certain price by a certain date. A buyer of a put option has the right, but not the obligation to sell a stock for a certain price by a certain date. To determine if there is any intrinsic value in your stock option you can ask yourself if there is any immediate benefit in owning the option.
2.)For a call option to have any intrinsic value you must be able to buy the stock for a price lower than what it is selling for in an open market. This would make that call option in the money. For a Put option to have any intrinsic value and thus be in the money you would have to be able to sell the stock for more money than you could sell it for profit in the open market.
Below is a sample of an options chain for both a call and a put. The strike price for both options in this case is $22. When I looked at the information online the stock was currently selling for $23.60. Which means that the call option has intrinsic value and is in the money. The put option doesn’t have any intrinsic value so it is out of the money, because there is no immediate benefit to being able to sell the stock for $22 if you could sell it for $23.60 on the open market.
Calls
09 OCt 22.00(MSQ IN-E)1.89 +0.36 1.86 1.89 207 3131
Puts
09 OCt 22.00(MSQ UN-E)0.27 -0.12 0.26 0.28 348 10400
3.)Remember you must first know your rights as a trader . If there is an immediate benefit to your rights then your option is in the money. To calculate for Call options take the stock price minus the strike price, for Put options you take the strike price minus the stock price.