Investopedia

Continue to Site »

Deep In The Money

Filed Under » ,
Dictionary Says

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.
Investopedia Says

Investopedia explains '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.

Related Video for 'Deep In The Money'

Articles Of Interest

  1.

    Using Options Instead Of Equity

    Learn how to multiply returns and diversify risk by buying options instead of stock.

  2. An Alternative Covered Call Options Trading Strategy

    This different approach to the covered-call write offers less risk and greater potential profit.

  3. Options Basics Tutorial

    Discover the world of options, from primary concepts to how options work and why you might use them.

  4. In The Money Options

    Options offer investors a way to leverage their capital for greater investment returns. Find out what in the money means for option investors.

  5. Trading The QQQQ With In-The-Money Put Spreads

    Even beginners may use this strategy to trade a bullish outlook.

  6. How To Avoid Closing Options Below Intrinsic Value

    Find out how to get a better price for your option and increase your trading profits.

  7. Arbitrage Squeezes Profit From Market Inefficiency

    This influential strategy capitalizes on the relationship between price and liquidity.

  8. Making It Big On Wall Street

    Read about some of the most glamorous Wall Street jobs and what it takes to land one.

  9. Quants: The Rocket Scientists Of Wall Street

    Blend math, finance and computer skills to command a high - and well deserved - salary.

  10. Build A Baby Berkshire

    Get a piece of Warren Buffett's profit by using Form 13F to coattail his picks.
comments powered by Disqus
Marketplace
Hot Definitions

  1. Abatement Cost

    A cost borne by many businesses for the removal and/or reduction of an undesirable item that they have created.

  2. Validation Period

    The amount of time necessary for the premium on an insurance policy to cover the commissions, the cost of investigation, medical exams and other expenses associated with the issuance of the policy.

  3. Winner's Curse

    Because of incomplete information, emotions or any other number of factors regarding the item being auctioned, bidders can have a difficult time determining the item's intrinsic value. As a result, the largest overestimation of an item's value ends up winning the auction.

  4. Glocalization

    A combination of the words "globalization" and "localization" used to describe a product or service that is developed and distributed globally, but is also fashioned to accommodate the user or consumer in a local market.

  5. Disaster Loss

    A special type of tax-deductible loss, similar to a casualty loss, where a loss has been incurred by taxpayers who reside in an area that has been designated as a federal disaster area by the President.

  6. Fool In The Shower

    The notion that changes or policies designed to alter the course of the economy should be done slowly, rather than all at once.
Trading Center