What determines the intrinsic value of a call option?

The intrinsic value of a call option is determined specifically by the relationship between the stock price and the strike price. A call option gives the holder the right to purchase the underlying stock at a predetermined price, known as the strike price, before the option expires.

If the current stock price is greater than the strike price, the call option has intrinsic value, calculated as the difference between the two (stock price minus strike price). Conversely, if the stock price is less than the strike price, the call option has no intrinsic value, meaning it's worthless in terms of exercising that right. This direct connection between the stock price and strike price is fundamental in determining how valuable a call option is at any given point in time.

While the current market price, dividend yield, and market volatility are important factors in the overall valuation and trading of options, they do not directly affect the intrinsic value. For example, dividends can affect the stock price, and market volatility can influence option premiums, but it is the comparison of stock price to strike price that ultimately determines whether a call option is in-the-money (having intrinsic value) or out-of-the-money (not having intrinsic value).