Deep In The Money


DEFINITION of 'Deep In The Money'

An option with an exercise price, or strike price, significantly below (for a call option) or above (for a put option) the market price of the underlying asset. Significantly, below/above is considered one strike price below/above the market price of the underlying asset. For example, if the current price of the underlying stock was $10, a call option with a strike price of $5 would be considered deep in the money.


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BREAKING DOWN 'Deep In The Money'

The most important characteristic of this type of option is its considerable intrinsic value, which is calculated by subtracting the strike price from the underlying asset's market price for a call option (and vice versa for a put option). As an option moves deeper into the money, the delta approaches 100% (for call options), which means for every point change in the underlying asset's price, there will be an equal and simultaneous change in the price of the option, in the same direction. Thus, investing in the option is similar to investing in the underlying asset, except the option holder will have the benefits of lower capital outlay, limited risk, leverage and greater profit potential.

  1. At The Money

    A situation where an option's strike price is identical to the ...
  2. Out Of The Money - OTM

    A call option with a strike price that is higher than the market ...
  3. Call Option

    An agreement that gives an investor the right (but not the obligation) ...
  4. In The Money

    1. For a call option, when the option's strike price is below ...
  5. Intrinsic Value

    Intrinsic value is the actual value of a company or an asset ...
  6. Underlying

    1. In derivatives, the security that must be delivered when a ...
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