Option Price = Intrinsic value + Extrinsic value
Extrinsic value is time & volatility value.
This is affected by time until expiration and implied volatility. All options have some level of extrinsic value as long as there is time left until the expiration of the option.
Intrinsic value is the real value at expiration.
If the strike allows the option owner to buy shares at a discount (calls), or sell shares at a higher price than the market (puts), the option will have intrinsic value and be considered to be in the money. Calls that are below the stock price have intrinsic value. Puts that are above the stock price have intrinsic value.
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For OTM options, there is no intrinsic value. Extrinsic Value always becomes zero at the expiration.
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