# Value of options. Option Value Videos

Matt specializes in writing about bank stocks, REITs, and personal finance, but he loves any investment at the right price.

Follow him on Twitter to keep up with his latest work! An option's value is made up of its intrinsic value plus a time premium.

- Please read Characteristics and Risks of Standardized Options before deciding to invest in options.
- As a result, time value is often referred to as an option's extrinsic value since time value is the amount by which the price of an option exceeds the intrinsic value.
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The current value of your option trade depends on the price you paid, as well as the underlying stock price relative to the strike price of your option contract. Two components of an option's price When you buy a call or put option contract, the price you pay is made up of two distinct components: Time premium, also known as time value Intrinsic value, or the current value of the option, also known as the gross value Image source: Getty Images.

The time premium, or the option's time value, is the portion of the option's price that you pay for the uncertainty of the option's price until expiration. In other words, this is the amount you're paying for what the underlying stock could be worth in the future.

### Value of Option Prior to Expiration

The intrinsic, or gross, value of an value of options is the amount the option is in the money. In addition, the current value of an option trade is your net result if you were to exercise the contract today.

In other words, this is the current intrinsic value of the option, minus the price you paid for it. Since the option is out of the money, it has no intrinsic value.

Your option is no longer in the money, so it has no intrinsic value. Calculating the value of your options Here's a value of options more details on the difference between call and put options, as well as a calculator that can help you determine the value of yours.

Note: Gross value of the option in the calculator is the same as the intrinsic value concept I discussed earlier. As with any tool, it is only as accurate as the assumptions it makes and the data it has, and should not be relied on as a substitute for a financial advisor or a tax professional.

Article Reviewed on July 31, Michael J Boyle Updated July 31, An option contract's value fluctuates based on the price of the asset underlying it, such as a stock, exchange-traded fund, or futures contract. Each one of these situations affects the intrinsic value of the option. The amount of time remaining before the option contract expires also plays a role in the value of the option, which in turn affects how high or low a price—the premium—the buyer is willing to pay for the option. The buyer could exercise their right under the option contract and buy the underlying asset for less than its current value. That means the call has intrinsic value.

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