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Intrinsic value is the calculated difference between the in-the-money (ITM) option’s contract strike price and the underlying security's price at expiration.
The option price has an additional value before the expiration date; this component called the ‘Time Value’. Time value implies a future contract calculated time value. When pricing an option contracts premium, before expiration, there is an additional element called implied volatility (IV). For now, the time value will include the real time value and the hidden component. A call option contract strike = 35; financial instruments market price = 36; the intrinsic value is one dollar. Later on you will understand why is that even at the expiration day the option’s premium is higher than its intrinsic value.
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The graph above shows at the premium compounded from the intrinsic value of one dollar and time value (implied volatility) of $0.93, meaning that until the expiration (if the underlying security price stays the same), time value will decay and at the end of the option’s contract life, time value will equal to zero.
Put option strike = 35, underlying market price = 34, intrinsic value is 1.0 dollar at the expiration day.
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The graph above shows at the price there is the intrinsic value of $1.00 and time value of 0.82, meaning, until the expiration (if the underlying security price stays the same), time value will decay and until the end of the options contract life, at expiration, value will equal to zero.
Note:
First a word on trading. As you already have seen options pricing at first must look very simple. When you are buying a contract, check how much you will be paying for the time value. One of the first and most crucial rules in buying an option contract is to evaluate its time value. It doesn’t matter if it is put or call, one who wants to buy a contract must see if the contract’s time value is relatively higher that it should be.
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Fundamentals 
