Series 4

Index, Interest Rate And Currency Options - Exercising An Index Option

It is usually not wise to exercise an index option prior to its expiration because the investor would lose any amount of time value contained in the options premium. Additionally, if the investor exercises their option at 10:00 AM the investor will receive the in the money amount, as of the close of the market that day. It is quite possible for an investor to exercise their in the money option at 10:00 AM and have the option be out of the money at the close of business because the market moved against them. In both scenarios, it is better to sell the option.

Series 4 Study Guides



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