What is intrinsic value?
Updated on August 24, 2026 · by Alex
Intrinsic value is the part of an option price that reflects gain it already holds: the difference between the price of the underlying and the strike price, when that difference is favourable. In company valuation the term means something else: what a business is worth based on its future cash flows, regardless of what the market says.
Worth separating, because they belong to different contexts and mixing them up causes confusion.
In options — the more frequent use — intrinsic value is the gain the option already carries if it were exercised right now. A call with a strike of 100, on a stock trading at 118, has 18 dollars of intrinsic value. It is never negative: if the stock trades at 92, intrinsic value is zero, not minus eight.
In valuation, intrinsic value is what a company is worth based on the money it will generate in the future, discounted back to today. It is the idea behind all fundamental analysis: price is what you pay, intrinsic value is what you believe you get, and the gap between them is the reason to buy or not.
In options, because it breaks the price apart and tells you what you are paying for. An option price is always intrinsic value plus extrinsic value. The intrinsic part is the solid one: it does not evaporate with time, it does not depend on volatility, it is there as long as the stock stays where it is.
In valuation, because it is the only thing that turns “I like this stock” into a thesis. Without an estimate of intrinsic value, a price target is an opinion with no denominator.
Treating valuation intrinsic value as an objective figure. It is not. It comes out of a model that requires assuming how fast the company grows, at what margins, and at what rate that future is discounted. Nudge any of those three and the answer shifts by tens of percentage points. Two honest, competent analysts land on very different numbers.
In options, the mistake is paying a lot for an option with almost no intrinsic value. When 90% of what you pay is extrinsic value, you are not buying a position: you are buying time, and time burns on its own.
