Intrinsic Value Theory

Intrinsic value theory posits that an option's value should be based on the difference between the underlying asset's current price and the strike price. If an option is in the money, its intrinsic value is the profit that would be realized if the option were exercised immediately.

This value provides a floor for the price of the option. For deeper understanding, traders must differentiate between this intrinsic value and the extrinsic or time value of the option.

In crypto, evaluating the intrinsic value of calls and puts is a standard exercise for determining the objective utility of a derivatives position. It anchors options trading in tangible asset price realities.