Can intrinsic value of Options be negative?
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- Updated On:26-May-2021
- Replies:2
Short Answer
Intrinsic value plays a major role as it tells the actual value of the stock. Also, it can never be negative, it will always be greater than or equal to zero. It is also calculated as the absolute difference between current price and strike price.
Detailed Answer
About Options:
Options are a form of conditional derivatives policy that allows the holder to buy or sell the specific asset at a predetermined price before or after the agreement expires. Since the value of the underlying asset is extracted from options, they are referred to as derivatives. Options are known as dominant because they have the potential to boost any individual's portfolio.
About Intrinsic Value:
The expression "intrinsic value" refers to a stock's true value. It is measured based on the cash flows of the asset. The current value of anticipated future cash flows, calculated at the correct discount rate, is the intrinsic price of a business or any security. All of its products are concluded using fundamental analysis. It is the estimated present value of all projected future profits at the required rate of return.
Can intrinsic value of options be negative?
Intrinsic value can never be negative. When the option will be in the money (ITM), it is positive; when it is out of the money, it is zero (OTM).
Hence, it will never be less than zero.
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Discussion (1)
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Harshil Patel
The intrinsic value of the option is never negative but tentative to change based on the open contracts and the volume of trades executed in those open options contracts.