Intrinsic value

Intrinsic value is the immediate exercise value of an option, representing how much the option would be worth if exercised at current market prices. It excludes time value, volatility, and other optionality components.

In energy options markets, intrinsic value depends on the relationship between the option strike price and the underlying commodity price. A call option has intrinsic value when the market price is above the strike; a put has intrinsic value when the price is below the strike.

Intrinsic value is important for understanding option valuation, hedging decisions, and risk exposure. As expiry approaches, time value decays and the option’s value converges toward intrinsic value.

Example: a Brent call option with a $70 strike has $5 intrinsic value when Brent trades at $75. Traders managing refinery margins or production hedges monitor intrinsic value to assess whether exercising, rolling, or closing options is economically rational.