what is deep in the money 
deep in the money is an option that has an exercise or strike price significantly below for a call option or above for a put option the market price of the underlying asset the value of such an option is nearly all intrinsic value and minimal extrinsic or time value deep in the money options have deltas at or close to 1 00 or 100 which means the price of the option is expected to increase or decrease nearly in unison with the change in market price of the underlying security deep in the money options can be contrasted with those deep out of the money which instead have no intrinsic value and also minimal extrinsic value these options have deltas close to zero understanding deep in the moneythe internal revenue service irs defines deep in the money options as either an option is usually said to be deep in the money if it is in the money itm by more than 10 so if a call option is deep in the money it means that the strike price is at least 10 less than the underlying asset or 10 higher for a put option for lower priced equities 5 or less may be the level necessary to be deep in the money the most important characteristic of this type of option is its considerable intrinsic value to calculate the value of a call option one must subtract the strike price from the underlying asset s market price for a put option you would add the strike price to the underlying asset price deep in the money options have a very high delta level meaning that the options will move nearly in lock step with the underlying asset as a call option moves deeper into the money its delta will approach 100 at this delta every point change of underlying asset price results in an equal simultaneous option price change in the same direction for this reason deep in the money options are an excellent strategy for long term investors especially compared to at the money atm and out of the money otm options 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 special considerationsdeep in the money options allow the investor to profit the same or nearly the same from a stock s movement as the holders or short sellers of the actual stock despite costing less to purchase than the underlying asset while the deep money option carries a lower capital outlay and risk they are not without risk because options have a limited lifespan unlike stocks the investor the buyer of the option needs the underlying stock to move in the desired direction higher for calls and lower for puts within the specified period to make a profit there is always the possibility that the stock will move in the opposite of the desired direction leading the option to lose value and even potentially fall otm in that case intrinsic value declines or completely disappears leaving only the premium which is at the mercy of time decay traders will often look to close out deep in the money options by exercising them early which is only allowed for american options european options can only be exercised when they expire doing so can help clean up a trader s options position while also capturing more favorable interest rates in the case of deep puts or dividends in the case of deep calls this is because owning a deep put is effectively the same as being short the stock but without being credited the short proceeds that can earn interest likewise being long a deep call is effectively the same as being long the stock but contract holders would not receive the dividends paid unless they owned the shares instead deep in the money examplesuppose an investor buys a may call option for stock abc with a strike price of 175 on jan 1 2019 the closing price for abc was 210 on jan 1 2019 and strike prices for may call options on the same day were 150 175 210 225 and 235 because the option term is more than 90 days the call option with a strike price of 150 two strikes less than 210 is a deep in the money option at the same time these options both probably have deltas somewhere in the high 0 90s investopedia does not provide tax investment or financial services and advice the information is presented without consideration of the investment objectives risk tolerance or financial circumstances of any specific investor and might not be suitable for all investors investing involves risk including the possible loss of principal correction dec 24 2021 this article has been edited to clarify that the maximum possible delta value for an option is 1 00 sometimes called delta one or 100 delta 