Intrinsic Value and Extrinsic Value (of an option)
Intrinsic value, or actual value or inherent worth of a stock, company or an asset, is based on the overall perception of its true value that incorporates all parts of the company, stock or asset.
This may or may not match current market value. By using a variety of techniques to analyze the intrinsic value of securities, investors look to find bargain investments that have a higher true value than current market value is the goal of every investor. Extrinsic value is defined as the difference between an option’s market price and actual (intrinsic) value. Also considered worth assigned to it generated by external factors, such as an emotional tie to a family heirloom, that any purchaser who was not family, would not be able to convey.