Intrinsic and extrinsic value in options trading

In options trading, understanding intrinsic and extrinsic value is crucial. Intrinsic value is the amount by which the strike price is below (for call options) or above (for put options) the current market price. Extrinsic value, on the other hand, is the additional value above the intrinsic value and comes from factors like time to expiration and volatility. Traders can use this knowledge to buy undervalued options, sell overvalued options, and protect profits. By recognizing and leveraging intrinsic and extrinsic values, traders can improve their options trading strategies.