An option trading at exactly its intrinsic value, with no time value left; the floor for an in-the-money contract.
A deep in-the-money option eventually trades at parity: its price equals the intrinsic-value and nothing more. At that point it behaves like 100 shares, with delta near 1.00 and theta near zero.
Parity is the trigger condition traders watch for early-exercise. Once extrinsic value is gone, holding the option instead of the stock gains you nothing, and exercising may gain you a dividend or interest.
Example: XYZ at $80, and the $50 call quotes 30.00 / 30.10. Intrinsic is $30.00, so the bid is at parity. Anyone short that call should assume assignment is likely, especially before an ex-dividend date, because the holder gives up nothing by exercising.
Original diagrams for the ideas on this page. Illustrative, not real market data.
Buying a call: payoff at expiry. A 105-strike call bought for 3 loses that whole 3 if the price finishes at or below 105, breaks even at 108, then gains a dollar for every dollar higher. The loss is capped at the premium; the upside is not capped.Time decay of an option's value. The part of an option's price that is only time — its extrinsic value — drains away every day and must reach zero at expiry. The slide is gentle months out and steepest in the final weeks, which is what traders call theta.
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