
Binarium
Best Binary Options Broker 2020!
Free Trading Education!
Free Demo Account!
Perfect for Beginners!
Deep Out Of The Money
What Is Deep Out Of The Money?
An option is considered deep out of the money if its strike price is significantly above (for a call) or significantly below (for a put) the current price of the underlying asset. Typically, this means the strike price of the option must be more than a few strikes in the option chain away from the price of the underlying asset.
Out of the money options have no intrinsic value and trade on their time value. The deeper out of the money the option, the more exaggerated this becomes. Conversely, in the money options have both intrinsic value and time value.
Understanding Out Of The Money Options
Understanding Deep Out Of The Money
In order for a call option to have value at maturity or expiration, the price of the underlying asset must be above the option’s strike price. For a put option, the price of the underlying must be below the option’s strike price. If neither is true than the option will expire worthless. Therefore, the deeper out of the money the option is, the less likely it is to expire with any value.
Example of Deep Out Of The Money
For example, if the current price of the underlying stock is $60, a put option with a strike price of $45 would be considered deep out of the money. A put option with a strike of $40 would be even deeper out of the money.
Trading Strategy
While a deep of out the money option seems worthless, the derivative still holds some value. All options, both in and out of the money, contain time value. Time value measures the benefit of having an option with time remaining until maturity with at least some chance that the price of the underlying will move towards the desired strike.
Therefore, while a deep out of the money call or put has no intrinsic value, some investors are willing to pay a small amount for the remaining time value. However, this time value decreases as the option moves closer to its expiry date.
The obvious feature of deep out of the money options is their very low cost compared to comparable options with strike prices closer to the price of the underlying. The risk that the options will expire worthless is great but so is the potential size of the reward, should the option move in the money before expiration. If the latter becomes true, the percentage payoff can be huge. The small amount paid for the option could multiply many times over. One hundred percent gains are actually on the low side of possibilities.
It is tempting to buy deep out of the money options on many assets at one time because only a few need to be successful to create an overall portfolio gain. However, commissions compound the costs and some experts consider these types of options to be gambling with a high possible payoff but with very low odds of success.
deepoutofthemoney
Deep Out of the Money
1. A put option with a strike price less than half the value of the underlying asset.
2. A call option with a strike price more than double the value of the underlying asset.

Binarium
Best Binary Options Broker 2020!
Free Trading Education!
Free Demo Account!
Perfect for Beginners!
In both these situations, the option contract has no intrinsic value. It is unlikely that the option will be in the money by the time the option is exercised.
deepoutofthemoney
Want to thank TFD for its existence? Tell a friend about us, add a link to this page, or visit the webmaster’s page for free fun content.
Link to this page:
 ▲
 Dedication strategy
 Deductible
 Deductible contribution
 Deduction
 Deductive reasoning
 deed
 deed books
 deed in lieu of foreclosure
 deed indented
 deed of reconveyance
 deed of trust
 deed poll
 deed restriction
 deed to secure debt
 Deelgemeente
 Deep Background
 Deep discount bond
 Deep discount brokerage firm
 Deep in the money
 deep market
 Deep out of the money
 Deep Pockets
 Deep See Diver
 deepdiscount bond
 deepinthemoney
 deepoutofthemoney
 defamation of title
 Default
 Default interest
 default point
 Default premium
 default risk
 defeasance
 defeasance fee
 defeasible fee
 defect in title
 defective work
 defendant
 Defense Advanced Research Projects Agency
 defensive acquisition
 defensive buy
 Defensive Investment Strategy
 Defensive securities
 Defensive security
 defensive stock
 deferment period
 Deferred account
 Deferred Acquisition Costs
 Deferred annuities
 deferred annuity
 Deferred call
 ▼
 ▲
 deepfry
 Deepfryer
 Deepfryer
 deepfrying
 deepfrying
 deepfrying
 deepfrying
 DeepHypersaline Anoxic Basin
 DeepIn
 deepinthemoney
 deepinthemoney
 deepkiss
 deepkiss
 deeplaid
 deeplaid
 deeplaidly
 deeplaidly
 Deeplevel transient spectroscopy
 deeplitter
 deeplobed
 deeplobed
 deepmarine sediments
 deepmined
 deepmined
 deepmined
 deepminedly
 deepminedly
 Deepmouthed
 Deepocean Assessment and Reporting of Tsunamis
 DeepOut
 deepoutofthemoney
 deeppan
 deeppenetration bomb
 deeppile fabric
 deeppink
 Deepread
 deeprooted
 deeprooted
 deeprooted
 deeprooted
 deeprooted belief
 deeprootedly
 deeprootedly
 deeprootedness
 deeprootedness
 deepsea
 deepsea
 deepsea
 deepsea
 DeepSea Animals
 deepsea basin
 deepsea channel
 DeepSea Deposits
 deepsea diver
 Deepsea diving
 Deepsea diving
 DeepSea Drilling Project
 Deepsea exploration
 Deepsea exploration
 Deepsea fan
 Deepsea fangly fish
 ▼
 Terms of Use
 Privacy policy
 Feedback
 Advertise with Us
Copyright © 20032020 Farlex, Inc
All content on this website, including dictionary, thesaurus, literature, geography, and other reference data is for informational purposes only. This information should not be considered complete, up to date, and is not intended to be used in place of a visit, consultation, or advice of a legal, medical, or any other professional.
deep out of the money
Большой англорусский и русскоанглийский словарь . 2001 .
Смотреть что такое “deep out of the money” в других словарях:
Deep Out Of The Money — An option with a strike price that is significantly above (for a call option) or below (for a put option) the market price of the underlying asset. To be deemed deep out of the money, an option s strike price should be at least one strike price… … Investment dictionary
deep outofthemoney — Used to describe an option that is unlikely to go into the money prior to expiration. An arbitrary term. The CENTER ONLINE Futures Glossary … Financial and business terms
deep out of the money — A call option with an exercise price substantially above the market price. Also put option with an exercise price substantially below the underlying stock s market price. Often substantially below is defined as more than one strike price below (… … Financial and business terms
out of the money — The situation where an option has only time value as opposed to intrinsic value because of the relationship between the option s strike price and the current market price for the underlying instrument, the spot price. A call option is out of the… … Financial and business terms
deep in/out of the money — A call option with an exercise price significantly higher than the current market price is considered deep out of the money … American business jargon
deep inthemoney — An option is deep in the money when it is so far in the money that it is unlikely to go out of the money prior to expiration. It is an arbitrary term and can be used to describe different options by different people. The CENTER ONLINE Futures… … Financial and business terms
Out of the Fog (film) — Out of the Fog Theatrical release poster Directed by Anatole Litvak Produced by … Wikipedia
Out of the Past — For the TV episodes, see Out of the Past (Moonlight) and Out of the Past (X Men episode). Out of the Past Theatrical release poster Directed by Jacques Tou … Wikipedia
The Money Pit — For the location known as The Money Pit , see Oak Island. The Money Pit Theatrical release poster Directed by Richard Benjamin … Wikipedia
in the money — The situation in which an option has value because of the relationship between the option s strike price and the current market price for the underlying instrument, the spot price. A call option is in the money when the strike price is below the… … Financial and business terms
deep — 1. adjective /diːp/ a) Having its bottom far down. That is a deep thought! b) Profound, having great meaning or import, but possibly obscure or not obvious … Wiktionary

Binarium
Best Binary Options Broker 2020!
Free Trading Education!
Free Demo Account!
Perfect for Beginners!