A slang term that denotes deep out-of-the-money options, that is, those options whose exercise price is considerably above (for a call) or below (for a put) the market price of its underlying asset. For example, if the market price of the underlying stock is $15, a put option with an exercise price of $7 would be deemed “deep out of the money”.
A deep out of the money option may, at first sight, seem valueless, but as a matter of fact, all options, whether in the money or out of the money (and no matter how deep) hold some time value. Time value represents the opportunity an option holder has (of exercising the option in the money) within the time remaining to maturity. The remaining time before expiration confers on a deep out of the money option some time value though its intrinsic value is zero. This value decays as the option approaches expiration date, day by day.
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