What is intrinsic value in the context of options?

Intrinsic value in the context of options refers to the difference between the underlying asset's current market price and the option's strike price, provided this difference is favorable to the holder of the option. For a call option, if the underlying asset's price is above the strike price, the intrinsic value is the amount by which it exceeds the strike price. Conversely, for a put option, if the underlying asset's price is below the strike price, the intrinsic value is the difference in this case. This value represents the immediate exercise value of the option and is critical for traders in determining the worth of an option at any given time.

The other options do not accurately describe intrinsic value. The total price of the option itself includes extrinsic value, which accounts for factors such as time until expiration and volatility, rather than just intrinsic value. Projected future prices of the underlying asset do not define intrinsic value, as it focuses solely on current price discrepancies. Lastly, the amount invested in purchasing the option reflects the cost and does not pertain to the intrinsic value of the underlying asset's relation to the option's strike price.