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   Forward Intrinsic Value
   















 

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Forward Intrinsic Value

Parity plus basis. The intrinsic value of an option (parity) plus the fair value basis on the forward underlying the option contract. A European option should not sell for less than its forward intrinsic value in an efficient market. The forward intrinsic value of a call will always be above the traditional intrinsic value measurement except in some cases when there is a dividend to be paid prior to expiration. The forward intrinsic value of a European put will always be less than the put's traditionally measured intrinsic value except in cases where there is an impending dividend. Also called Fair Value Premium. See also Basis (1) (diagram), Call Option (diagrams). In-The-Money Forward, Intrinsic Value of an Option.

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