Intrinsic Value

An option is said to have intrinsic value where the strike price of the option is more favourable than the current market forward rate.

As a general rule, the greater the intrinsic value of an option the higher its premium.

  • An option with some intrinsic value is described as being "in-the-money"
  • An option with no intrinsic value is said to be "out-of-the-money"
  • Where the strike price of the option is equal to the current forward rate the option is said to be "at-the-money"
OPTION TYPE

Spot rate greater than strike price

 Spot rate equal than strike price Spot rate less than strike price
CALLS In-The-Money At-The-Money Out-Of-The-Money
PUTS Out-Of-The-Money At-The-Money In-The-Money
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