58  •   The Intelligent Option Investor
Usually, our convention is to shade a gain of exposure in green, but 
in the  case of an ITM option, we will represent the range of exposure with 
intrinsic value in orange. This will remind us that if the stock falls from its 
present price of $50, we stand to lose the intrinsic value for which we have 
already paid. 
Notice also that our (two-tone) range of exposure completely over -
laps with the BSM probability cone. Recalling that each upper and lower 
line of the cone represents about a 16 percent chance of going higher or 
lower, respectively, we can tell that according to the option market, this 
stock has a little better than an 84 percent chance of trading for $40 or 
above in one year’s time.
2 
Again, the pricing used in this example is made up, but if we take a 
look at option prices in the market today and redo our earlier table to in-
clude this ITM option, we will get the following:
Strike Price ($)
Strike–Stock 
Price Ratio (%) Call Price ($)
Call Price as a Percent 
of Stock Price
70 140 $0.25  0.5
60 120 $1.15  2.3
50 100 $4.15  8.3
40 80 10.85  21.7
Again, it might seem confounding that anyone would want to use the 
ITM strategy as part of their investment plan. After all, you end up paying 
much more and being exposed to losses if the stock price drops. I ask you 
to suspend your disbelief until we go into more detail regarding option 
investment strategies in Part III of this book. For now, the important points 
are (1) to understand the difference between time and intrinsic value, 
(2) to see how ITM options are priced, and (3) to understand our convention 
for diagramming ITM options.
From these diagrams and examples it is clear that moving the range 
of exposure further and further into the BSM probability cone will increase 
the price of the option. However, this is not the only case in which options 
will change price. Every moment that time passes, changes can occur to