What is deep in money?
in finance, deep in money suggests that the strike of the option price is essentially deviating from the price of the shares of the underlying asset in a favorable way. For the possibility of calling deep in money, the price of strikes is significantly lower than the stock price. On the other hand, for an option that is deep in money, the strike is significantly higher than the market price of shares. In both of these situations, the holder of the option is to obtain considerable profit if this option is applied. To form deep in the money scenario, the strike must differ from the market price by at least one strike in the right direction depending on the type of option.
For example, shares for Companies X are currently selling for $ 50 (USD) per share. Agreement on calls for calls with a strike price of $ 25 and an option agreement with an accession price of 75 USDUSD would be deep in money. If the call holder uses his option, he will benefit from the purchase of X -$ 50 shares worth $ 50 fromand share for just $ 25 per share. The PUT holder also benefits from its possibility and sells its shares for $ 75 per share if the current value is only $ 50 per share. The possibilities that are deep in money have an internal value, which is the difference between the strike price and the current market price, which often stimulates the holders of the possibility to sell the possibility for their internal value.
Provision ratio, also known as delta, is a business ratio that compares changes in shares with corresponding changes in the internal value of the possibility. As the possibilities move deeper into the money, the provision ratio is close to 1.0 for the call and –1.0 for the PUT option. This means that for every $ 1, the market price of shares increases, the call option also increases $ 1. For the possibility of PUT, the exact opposite is true, each increase of $ 1 in the basic price of the shares corresponds to a reduction in the option of an option of $ 1.
options can also move deep from money. In this case, the call has the possibility to call the price of the strike,which is at least one strike higher than the current market price of its basic shares. On the contrary, the possibility of put, which is deep from the money, has a strike price, which is at least one strike lower than the current market price of its underlying shares. Although such a possibility has no internal value, it still has a time value based on the maturity date.
Many investors offer the benefits of investing in a deep call or inserting options. In many ways, it is similar to investing in the shares themselves. However, the benefits of an option investment in relation to investments in stocks include lever effect, limited risk and lower capital requirements. Another advantage is the greater potential for gaining associate with deep money options.