Early Exercise
Early exercise refers to the action of exercising (i.e., acting upon) an option before its expiration date, often to secure a profit or minimize a loss.
Benefits
Early exercise can help you manage risk. It allows you to act on market changes quickly, either to take profits or reduce losses.
Frequently Asked Questions
What happens when you exercise a put option early?
When you exercise a put option early, you sell the underlying asset at the agreed price. This can be useful if the market price drops sharply.
When should you early exercise a call option?
You should early exercise a call option if the underlying asset`s dividend is more than the option`s remaining time value. This way, you can own the asset and receive the dividend.
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Key Takeaway
Early exercise is a useful strategy in options trading. It gives you flexibility to respond to the market, helping you manage your investments better.