# How do you Determine the Intrinsic Value of an Option?

For the moment lets focus on the intrinsic value component of an options premium. Remember that the intrinsic value of an option is determine by the strike price relative to the current trading level of the underlying futures contract. Below we ask you to identify the month and type of futures contract(e.g., Class III), the type of option (PUT or CALL) and the associated strike price. After you enter the strike price, the Futures Settle Price column presents some hypothetical daily settle prices for the underlying futures contract. The Intrinsic Value column shows the intrinsic value for this option at these alternative settle prices. For a given put option and associated strike price, the intrinsic value (and premium) will increase as the settle price falls. Conversely, the intrinsic value will decrease as the settle price increases. Alternatively, for a given call option and associated strike price, the intrinsic value (and premium) will decrease as the settle price falls while the intrinsic value increases as the settle price increases. When the settle price equals the strike price for both put and call options, there is zero intrinsic value.