Intrinsic value (finance)
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In finance, intrinsic value refers to the value of a security which is intrinsic to or contained in the security itself.
[edit] Options
In options terminology, intrinsic value — as opposed to time value — is the positive difference between the current price for the underlying and the strike price of an option. For a call option the strike price has to be under the price of the underlying; for a put option the strike price has to be over the price of the underlying. If an option has intrinsic value, it is also referred to as in-the-money, if it has no intrinsic value, it is referred to as out-of-the-money. For example, if the strike price for a call option is USD 1 and the price of the underlying is USD 1.20, then the option has an intrinsic value of USD 0.20. Options are usually sold for their intrinsic value plus their time value. See option time value.
[edit] Equity
In valuing Equity, securities analysts may use Fundamental analysis - as opposed to Technical analysis - to determine the intrinsic value of a company. Here the "intrinsic" characteristic considered, is the cash flow production of the company in question. Intrinsic value is therefore defined to be the present value of all future net cash flows to the company; it is calculated via discounted cash flow valuation. See Valuation using discounted cash flows.
[edit] See also
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