hard · Principles of Finance

What is the primary reason an investor would NOT early exercise an American call option on a non-dividend-paying stock?

1. The investor would have to pay the full strike price immediately, increasing their capital gains tax liability.
2. The stock's volatility is expected to decrease, which would make the option less valuable in the future.
3. The option's time value is positive, and exercising would capture only the intrinsic value while forgoing the interest earned on the strike price.
4. American options can only be exercised at the end of the day, making intra-day price movements irrelevant.

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