The "daily Call" From Option Alpha: Options Trading | Stock Options | Stock Trading | Trading Online

Hey everyone. This is Kirk here again from Option Alpha and welcome back to the daily call. Today, we’re answering the question, “Can option prices trade below their intrinsic value?” I think today's question is actually two parts. There’s the first part which is – Can they trade below their intrinsic value? And the second part is – Should they trade below their intrinsic value? The first answer is they can actually trade below intrinsic value. Now, the second part is really, they should never trade below intrinsic value. And if they ever did trade below intrinsic value, those trading opportunities would be extremely short-lived and would probably be gobbled up by some algorithm that is looking for an arbitrage opportunity to buy the option contract or sell the option contract and deal with the stock and take a guaranteed profit in either case at expiration. This typically happens, again, because option pricing should be generally perfect to intrinsic value or at least that is the threshold for in the money o