Intrinsic vs Extrinsic Value Calculator

What Is Intrinsic Value?

Intrinsic value is the amount an option is in the money (ITM). For a call option, intrinsic value equals the stock price minus the strike price (if positive). For a put option, it equals the strike price minus the stock price (if positive). Intrinsic value can never be negative — it is always zero or positive.

An option that is at the money (ATM) or out of the money (OTM) has zero intrinsic value. For example, a $110 strike call when the stock is at $100 has no intrinsic value — its entire premium is extrinsic.

What Is Extrinsic (Time) Value?

Extrinsic value (also called time value) is the portion of the option premium above intrinsic value. It represents what traders are willing to pay for the possibility that the option could become more profitable before expiration.

Extrinsic value is driven by four main factors: time to expiration (more time = more value), implied volatility (more uncertainty = more value), interest rates, and dividend yield. At expiration, extrinsic value is always zero.

How Moneyness Affects the Split

• In the Money (ITM): Has both intrinsic and extrinsic value. Deeper ITM options have more intrinsic and less extrinsic value as a percentage of premium.
• At the Money (ATM): Intrinsic value is near zero. Almost the entire premium is extrinsic value. ATM options have the highest extrinsic value in dollar terms.
• Out of the Money (OTM): Zero intrinsic value. The entire premium is extrinsic value. These options are cheaper because they rely entirely on favorable stock movement.

Why Extrinsic Value Decays Over Time (Theta)

As expiration approaches, there is less time for the stock to move favorably, so the probability of the option gaining value decreases. This causes extrinsic value to erode — a process called theta decay or time decay.

Time decay is not linear: options lose roughly one-third of their time value in the first half of their life and two-thirds in the second half. This acceleration is visible in the Time Decay chart above (available in Black-Scholes mode).

Relationship to Other Greeks

• Theta (Θ): Measures the daily loss in extrinsic value. A theta of -0.05 means the option loses about $0.05 per day from time decay.
• Vega (ν): Measures sensitivity to implied volatility. Higher vega means extrinsic value changes more with IV shifts.
• Delta (Δ): Approximates the probability of finishing ITM. Deep ITM options (high delta) have more intrinsic value; OTM options (low delta) are almost entirely extrinsic.