Intrinsic Value

The difference between the Strike Price and the current value of the Underlying asset or commodity that the Option Contract is based on is known as Intrinsic Value. The calculation depends on whether it is a Call or Put Option. For Call Options, the Underlying value minus the Strike Price defines the Intrinsic Value, for Puts it is reversed: Strike Price - Underlying value. Options that are In The Money (whether Calls or Puts) have Intrinsic Value, all others do not.

Note that just because an Option Contract has no Intrinsic Value does not mean it is necessarily worthless. The Time Value remaining also affects the Premium, as does the Volatility of the Underlying instrument. See the Black-Scholes and Binomial model for more details on the variables that can affect Option Contract Premiums.