How does “deep-in-the-money” differ from just “In-the-money”?
When someone refers to a deep-in-the-money option they are referring to a call or a put with a delta close to 1.00 (or -1.00 for puts). This option moves very close to a one for one ratio with stock movement up and down, and is often viewed as the equivalent of long or short stock. If an option has a delta closer to say 0.75, (or -0.75 for a put) that option is also considered in-the-money. The difference is that although these options will “move” with the stock, they will not move at the same one to one ratio. Instead, if the stock went up $1.00, we could expect the 0.75 delta calls to gain $0.75. For more for information on Delta and option pricing, you may want to take the Options Pricing class.
