Deep In The Money Call Options – What Are They?

So what is a Deep In The Money Call Option?

Call options with stock prices above their exercise prices are considered to be “in the money.” A deep in the money call has an exercise price significantly below the current stock price.

For example, if Apple (AAPL) stock is trading at $151, all options with strike prices below that are considered to be in the money. There isn’t a standard definition of what makes a particular in the money call option earn the deep distinction. I personally consider strikes more than 30% below the stock’s current price is continued to be deep.

Baseball legend and former TheStreet.com (TSCM) newsletter writer Lenny Dykstra has popularized the use of deep in the money calls. However, myself and others consider them to be high-risk instruments due to the leverage of call options. Large amounts of money can be made if a stock goes up, but fortunes can be quickly lost if a stock heads south.