Binomial Option Pricing Model

Finance allah shmoop what is the intrinsic value of an

option All right this is brandi She owns a twelve

dollars strike price call option toe buy a share of

my fifteen minutes are up dot com a retirement home

chain for reality tv stars who recently gained self awareness

Well the stock is trading for fifteen bucks a share

of this moment Her strike price is twelve so the

intrinsic value of that option is fifteen minutes twelve or

three bucks that is it is three dollars in the

money and if brandy converted it into a share this

moment and then immediately sold the stock for fifteen dollars

in cash well she'd make three bucks But there's a

catch per call option doesn't expire for five weeks so

that three dollars in the money is actually worth more

than three dollars because she has data or time yet

to exercise and convert or just sell the option itself

So it's worth mohr because well a stock might go

up from fifteen dollars in overtime Stocks go up so

in the next five weeks well couldn't go up a

dime twenty cents twenty five cents and make that three

Dollars worth three ten three twenty three Twenty five Sure

sure it could happen So yeah that's The difference between

actual value and intrinsic value You get seita kickers in

there making the option's worth more than just converting them

into stock and selling them right there And yeah it

looks like our one and a half minutes are up