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Can intrinsic value of options contracts be negative?

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Abhishek Chinchalkar
Abhishek Chinchalkar FYERS Team

Hi Pradeep, intrinsic value of an option cannot be negative. Remember, intrinsic value represents the in-the-money portion of an option contract. When the option contract is at-the-money or out-of-the-money, the intrinsic value is zero.

Why is the intrinsic value zero and not negative when an option is out-of-the-money. Well, when an option is out-of-the-money, the holder of the option would not exercise his or her right to buy or sell the underlying instrument at the strike price, simply because he or she can directly buy/sell the underlying from the market at a better price. Hence, the holder would let the option expire worthless. It is for this reason that intrinsic value of an option cannot be negative.

We have explained in detail about intrinsic value and option moneyness in FYERS School of Stocks, our free online stock market education portal. To learn, click the link below:

https://fyers.in/school-of-stocks/chapter/options/option-price-and-option-moneyness.html

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