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Intrinsic and Extrinsic Value

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Options involve risk and are not suitable for all investors. Please read Characteristics and Risks of Standardized Options before deciding to invest in options.

An option price is comprised of two primary components; intrinsic value and extrinsic value. Summing these two values results in the price of the option. Intrinsic value represents the value of the option if it were exercised at the current price. Extrinsic value represents the time value of the option. In this sense, OTM and ATM options are composed entirely of extrinsic value while ITM options represent a blend of both intrinsic and extrinsic value. As options transition from being OTM to ITM, the composition of intrinsic and extrinsic value changes.

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