Introduction

Options Premium

Options Moneyness

Probability of Profit

Option Buyers Vs Sellers

Here are some points that explain the connection between option moneyness and intrinsic and extrinsic value –

** For in-the-money options:**

- Intrinsic value is positive

- Extrinsic value may or may not be present, depending on how much time is left until expiration and the volatility of the underlying asset

**For at-the-money options:**

- Intrinsic value is zero
- Extrinsic value is usually present, since there is still time left until expiration and uncertainty about the future price of the underlying asset

**For out-of-the-money options:**

- Intrinsic value is zero
- Extrinsic value is the entire option premium, since the option has no value based on the current price of the underlying asset

**As an option moves from out-of-the-money to in-the-money:**

**Intrinsic value increases****Extrinsic value decreases, since there is less uncertainty about the future price of the underlying asset**

**Conversely, as an option moves from in-the-money to out-of-the-money:**

**Intrinsic value decreases****Extrinsic value increases, since there is more uncertainty about the future price of the underlying asset**

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