Explain Why a Deep ITM Call Option Has a Delta Close to 1.
A deep In-the-Money (ITM) call option has a Delta close to 1 because its price movement almost perfectly mirrors the movement of the underlying asset. The option is so far ITM that its intrinsic value is high, and the probability of it expiring OTM is negligible.
Therefore, for every $1 change in the underlying price, the option’s price also changes by nearly $1, acting almost like a synthetic long position in the underlying asset.
Glossar
Deep Itm Options
Nature ⎊ Contracts with strike prices that are significantly below the current market price for calls or above for puts possess high intrinsic value.
Deep Itm Call Option
Delta ⎊ Deep ITM Call Options exhibit a Delta value approaching unity, indicating a near one-to-one correlation with the underlying crypto asset's price movement.
Synthetic Long Position
Position ⎊ A synthetic long position in cryptocurrency derivatives, particularly options, replicates the payoff profile of owning the underlying asset without direct ownership.
Deep Itm Option
Characteristic ⎊ A Deep Itm Option, or Deep In-The-Money option, possesses a strike price substantially distant from the current cryptocurrency spot price, resulting in a significant intrinsic value.
Deep ITM
Depth ⎊ In cryptocurrency options and financial derivatives, a Deep In-The-Money (ITM) position signifies an option contract where the strike price is significantly below the current market price of the underlying asset for calls, or substantially above for puts.