Glossarytaught in M3.04, M6.01
Intrinsic value
Also called fundamental value, intrinsic worth.
What a business is worth on the basis of the cash it will produce, independent of what anyone will pay for it today.
Intrinsic value is an estimate with wide error bars. Treating it as a fact is the commonest failure among people who've just learned to build a model. Two careful analysts with the same information will reach different answers, and both can be defensible.
An estimate gives you a reference point. Without one, a price movement is the only information you have, and price movements are the least reliable input there is.
For an option the words mean something narrower. It's the value if the option were exercised now, which for a call is the share price less the strike, and never below zero. A call with a ₹1,000 strike on a ₹1,080 share has ₹80 of intrinsic value.
Hold the estimate loosely and the process tightly.
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