The portion of an option's price you would capture by exercising it immediately; zero for out-of-the-money options.
For a call, intrinsic value is stock price minus strike-price, if positive. For a put, it is strike minus stock price. Everything above intrinsic value is extrinsic-value.
An option can never trade below intrinsic value for long, because arbitrageurs would buy it and exercise.
Example: stock at $73, a $70 call has $3 of intrinsic value. A $75 call has none: all of its price is extrinsic.
Original diagrams for the ideas on this page. Illustrative, not real market data.
Buying a call: payoff at expiry. A 105-strike call bought for 3 loses that whole 3 if the price finishes at or below 105, breaks even at 108, then gains a dollar for every dollar higher. The loss is capped at the premium; the upside is not capped.
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