Intrinsic value
Principles of Finance glossary · Valuation of Bonds & Stocks
Definition
An option's immediate-exercise payoff; also, a security's value estimated from fundamentals.
Intrinsic value in plain English
Intrinsic value means "what something is really worth right now," stripped of hype or guesswork. For an option — a contract that lets you buy or sell something at a set price — it's simply the cash you'd pocket if you cashed it in this instant (and zero if cashing it in would lose you money, since you'd just walk away). More broadly, for a stock or bond, intrinsic value is the price you'd calculate from the actual facts — the company's earnings, assets, and cash flow — rather than whatever mood the market happens to be in that day. It's the difference between what a used car is genuinely worth and what an excited buyer might overpay.
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