Early Exercise

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Definition of 'Early Exercise'

The exercise of an option prior to its expiration date. Early exercise is only possible with American-style option contracts, which can be exercised at any time up to expiration, as opposed to European options, for which early exercise is not possible as they can only be exercised on the expiration date. Early exercise of a call option enables the call option buyer to purchase the underlying security at the strike price before expiration, while early exercise of a put option enables the put option buyer to sell the underlying security at the strike price before expiration.
Investopedia Says

Investopedia explains 'Early Exercise'

While early exercise is generally not advisable, because the time value inherent in the option premium is lost upon doing so, there are certain circumstances under which early exercise may be advantageous. For example, an investor may choose to exercise a call option that is deeply in-the-money (such an option will have negligible time value) just before the ex-dividend date of the underlying stock. This will enable the investor to capture the dividend paid by the underlying stock, which should more than offset the marginal time value lost due to early exercise.

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'Early Exercise'

  • Trading OEX Options: The Risk Of Early Exercise

    http://www.investopedia.com/articles/optioninvestor/09/early-exercise-oex.asp
    Trading OEX Options: The Risk Of Early Exercise. ... Read on to learn more about
    early exercise and why OEX is the exception to the rule. ...

  • Avoid Premature Exercise On Employee Stock Options

    http://www.investopedia.com/articles/optioninvestor/09/get-more-out-of-your-esos.asp
    With early exercise, you forfeit some profit back to
    your employer, and incur income tax to boot. ...

  • Dividends, Interest Rates And Their Effect On Stock Options

    http://www.investopedia.com/articles/optioninvestor/03/121003.asp
    Learn how analyzing these variables are crucial to knowing when to exercise early. ...
    You must exercise the option early just to ensure you break even. ...

  • Employee Stock Options: Introduction | Investopedia

    http://www.investopedia.com/university/employee-stock-options-eso
    ... Chapter 6 looks at the process of early exercise, the financial objectives typical
    of a grantee taking this road (and related issues), plus the associated ...

  • Employee Stock Options: Introduction | Investopedia

    http://www.investopedia.com/university/employee-stock-options-eso/
    ... Chapter 6 looks at the process of early exercise, the financial objectives typical
    of a grantee taking this road (and related issues), plus the associated ...

  • ETF Options Vs. Index Options

    http://www.investopedia.com/articles/optioninvestor/10/etf-options-v-index-options.asp
    ... are also subject to "early exercise", meaning that they can be exercised at any
    time prior to expiration, thus triggering a trade in the underlying security. ...

  • American Options Investors: Should You Go Euro?

    http://www.investopedia.com/articles/optioninvestor/08/american-european-options.asp
    ... options. The only such options are OEX, so the easiest way to avoid the
    early-exercise risk is to avoid trading OEX options. When ...

  • Hedging With Puts And Calls

    http://www.investopedia.com/articles/optioninvestor/10/hedging-puts-calls.asp
    ... in one stock and wish to reduce that risk and avoid paying a capital gains tax or
    pay the costs of an early exercise of the employee stock options. ...

  • How to Trade Box Spreads in Options

    http://stocks.investopedia.com/stock-analysis/moneyshow/HowtoTradeBoxSpreadsinOptions.aspx
    ... Get Free Stock Analysis By Email. One danger to the box spread is that in analyzing
    it, you can easily overlook the risk of early exercise. ...

  • Exotic Options: A Getaway From Ordinary Trading

    http://www.investopedia.com/articles/optioninvestor/07/exotic-options.asp
    ... option. As such, you'll find early exercise impossible because the underlying
    conditions will not have been met. Bermuda Options ...

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