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 100.

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.

The Internal Revenue Service (IRS) defines deep in the money options as either.

Any option with a term of fewer than 90 days that has a strike price that is one strike less than the highest available stock price.

An option with a term of more than 90 days, with a price less than two strikes than the highest available stock price.1

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. 

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.

investopedia