The amount that a contract is in the black is its intrinsic value. The contract's premium is not a deciding factor. When the stock's market value exceeds the strike price, all calls are in the black.
Based on the cash flows from an investment, intrinsic value calculates its worth. In contrast to market value, which indicates the amount buyers are prepared to pay for an asset, intrinsic value illustrates the asset's value based on an examination of its actual financial performance.
Investors should understand the notion of intrinsic value because it enables them to determine if a stock is trading above or below that value. That typically denotes an excellent investment opportunity. Who, after all, hasn't followed the age-old adage "Buy low, sell high"?
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