Financial Industry Regulatory Authority (FINRA) Practice Exam 2025 - Free FINRA Practice Questions and Study Guide

Intrinsic value in the context of options trading refers to the inherent worth of an option, determined by how much the option is 'in the money.' For call options, this means the difference between the current market price of the underlying asset and the strike price of the option, whenever this amount is positive. For put options, it is the amount by which the strike price exceeds the current market price of the underlying asset.

Therefore, the definition of intrinsic value captures the essence of how options have tangible, quantifiable worth based solely on market conditions at any given moment. It reflects what an option would be worth if it were exercised immediately. This concept is crucial for traders assessing the viability of their options positions and making informed trading decisions based on potential profitability.

The other choices refer to different financial concepts: the amount by which a call option is in the money is a partial view of intrinsic value, but does not encompass put options; the total value of a bond issue is unrelated to options; and the current market price of an underlying asset, while relevant, does not specifically delineate the intrinsic value of an option. Thus, understanding intrinsic value allows traders to make informed choices concerning their options strategies.