Moneyness, intrinsic value and time value
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Moneyness is where the price of the stock stands against the strike price of an option, intrinsic value is the amount by which the option is in the money, and time value is the rest of its premium.
Key points
- A call is in the money when the stock is above its strike price, and a put is in the money when the stock is below its strike price.
- Intrinsic value is what an option would be worth if it expired now. It is never less than zero.
- Time value is the premium less the intrinsic value. It is largest for options at the money and it is zero at expiration.
- An option that is out of the money has no intrinsic value, so its whole premium is time value.
On this page
The premium of an option can be split into two parts that behave differently. One part depends only on where the stock stands today. The other depends on time and on how much the stock is expected to move.
What in the money, at the money and out of the money mean
Moneyness compares the price of the stock with the strike price of the option.
| Moneyness | A call is | A put is |
|---|---|---|
| In the money | Strike price below the stock price | Strike price above the stock price |
| At the money | Strike price equal to the stock price, or the closest to it | Strike price equal to the stock price, or the closest to it |
| Out of the money | Strike price above the stock price | Strike price below the stock price |
With XYZ at $50, the 45 call and the 55 put are in the money, the 50 call and the 50 put are at the money, and the 55 call and the 45 put are out of the money. Moneyness changes when the stock moves. The option stays the same contract.
What the intrinsic value of an option is
Intrinsic value is the amount by which an option is in the money, per share.
- For a call it is the stock price less the strike price.
- For a put it is the strike price less the stock price.
- When the result is negative, the intrinsic value is zero.
With XYZ at $50, the 45 call has an intrinsic value of $5.00 and the 55 call has none. An option at the money or out of the money has no intrinsic value. Intrinsic value is what the option would be worth if it expired at this moment.
What the time value of an option is
Time value is the part of the premium above the intrinsic value:
time value = premium - intrinsic value
It is what the market pays for the possibility that the option is worth more at expiration than it would be today. It is larger when more time is left and when the stock is expected to move more. On the expiration date no time is left, and the premium of an option is its intrinsic value and nothing else. Theta and time decay follows the loss of time value day by day, and Implied volatility the movement that a premium pays for.
How intrinsic value and time value share a premium
The table shows options on a stock at $50 with 30 days to expiration. The premiums are computed with the Black-Scholes model from a volatility of 30%, an interest rate of 4% and no dividend.
| Option | Moneyness | Premium | Intrinsic value | Time value |
|---|---|---|---|---|
| 45 call | In the money | $5.35 | $5.00 | $0.35 |
| 50 call | At the money | $1.80 | $0.00 | $1.80 |
| 55 call | Out of the money | $0.33 | $0.00 | $0.33 |
| 45 put | Out of the money | $0.20 | $0.00 | $0.20 |
| 50 put | At the money | $1.63 | $0.00 | $1.63 |
| 55 put | In the money | $5.15 | $5.00 | $0.15 |
Time value is largest at the money, where the outcome is the least certain, and it shrinks in both directions away from the stock price.
Example of the premium of a call in the money
What can go wrong with moneyness and time value
Time value is lost with certainty if nothing else changes. A holder pays for it on the first day and has none left on the last. A call that is out of the money needs the stock to rise past its strike price and then by the premium as well, and all of that inside the life of the option.
A low premium is not a low risk of loss. The 55 call in the table costs $33 per contract and is made of time value only: unless the stock rises more than 10% in 30 days, the whole $33 is lost.
For a writer, an option deep in the money with little time value left is the one most likely to be assigned before its expiration, because its holder gives up little by exercising.
Questions and answers
Why does an option show a last price below its intrinsic value?
The last price is the price of the most recent trade, and that trade can be hours, days or weeks old. It was made at another price of the stock. The bid and the ask show what the option is worth in the market now.
Terms used on this page
- Moneyness
- Where the price of the underlying stands against the strike price of an option. An option is in the money, at the money or out of the money.
- In the money
- A call whose strike price is below the price of the stock, or a put whose strike price is above it. An option that is in the money has intrinsic value.
- At the money
- An option whose strike price equals the price of the stock or is the listed strike price closest to it.
- Out of the money
- A call whose strike price is above the price of the stock, or a put whose strike price is below it. Its premium is made of time value only.
- Intrinsic value
- The amount by which an option is in the money, per share. It is the stock price less the strike price for a call and the strike price less the stock price for a put, and never less than zero.
- Time value
- The part of an option's premium above its intrinsic value. It pays for the time left and for the movement expected until expiration, and it is zero at expiration.
- Premium
- The price of an option, quoted per share. One standard contract covers 100 shares, so a premium of $1.50 is $150 per contract.
Sources
- Leverage & Risk, The Options Industry Council (read 29 September 2026).
- Options Pricing, The Options Industry Council (read 29 September 2026).
- Options Glossary, The Options Industry Council (read 29 September 2026).
- Basics, The Options Industry Council (read 29 September 2026). Frequently asked questions.
- An Introduction to Options – Investor Bulletin, U.S. Securities and Exchange Commission (read 29 September 2026).
- The Pricing of Options and Corporate Liabilities, Fischer Black and Myron Scholes, Journal of Political Economy 81 (3), 1973 (read 29 September 2026).