How Does an Option’s Extrinsic Value Change as It Moves from OTM to ITM?

As an option moves from OTM to ITM, its extrinsic value initially increases as it approaches the ATM point, where extrinsic value is highest. However, as it moves deeper ITM, the extrinsic value begins to decrease.

This is because the option's Delta approaches 1.0 (or -1.0), and its price becomes dominated by intrinsic value, leaving less room for time and volatility value.