Definition of "Deep In The Money"

A call option whose exercise (strike) price is considerably below the underlying security's current market price--that is, the strike price is 5 or more points below the underlying security's current market price. In regard to a put option, the exercise price is well above the underlying security's current market price--that is, the strike price is 5 or more points above the underlying security's current market price. When buying a deep-in-the-money call option, the premium is high because the holder has the right to purchase the stock at an exercise price that is substantially below the underlying security's current market price.