Fugit

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DEFINITION of 'Fugit'

The amount of time that an investor believes is left until it would no longer be beneficial to exercise an option early, or the likelihood that an American-style option will be used before it expires. The fugit concept was named and created by Mark Garman, a Berkeley professor who studied the optimal time for exercising an American option using binomial trees.

BREAKING DOWN 'Fugit'

Unless an option is deep in the money, it should not be exercised early because this causes a loss of inherent value. Some investors find it profitable to exercise call options early when they are in the money or right before an ex-dividend date.

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RELATED FAQS
  1. When does one sell a put option, and when does one sell a call option?

    The incorporation of options into all types of investment strategies has quickly grown in popularity among individual investors. ... Read Full Answer >>
  2. How is a put option exercised?

    A put option is a contract that gives the option holder the right, but not obligation, to sell a set amount of shares (1 ... Read Full Answer >>
  3. I own some stock warrants. How do I exercise them?

    Typically, stock warrants are derivative instruments added to new issues of stocks or bonds to make these issues more attractive. ... Read Full Answer >>
  4. How does a forward contract differ from a call option?

    Forward contracts and call options are different financial instruments that allow two parties to purchase or sell assets ... Read Full Answer >>
  5. What are the main risks associated with trading derivatives?

    The primary risks associated with trading derivatives are market, counterparty, liquidity and interconnection risks. Derivatives ... Read Full Answer >>
  6. How can an investor profit from a fall in the utilities sector?

    The utilities sector exhibits a high degree of stability compared to the broader market. This makes it best-suited for buy-and-hold ... Read Full Answer >>

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