Extrinsic Value

Extrinsic Value

If the intrinsic value of an option is the amount by which it is in the money, the option’s extrinsic or time value accounts for the rest of the option’s price. Buying a call at EUR 50 when the underlying is trading at EUR 60 equates to an intrinsic value of EUR 10. If the price of the option is EUR 15, the extrinsic value is EUR 5. Out-of-the-money and at-the-money options by definition have no intrinsic value; the price consists solely of extrinsic value/time value.

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