hard · Principles of Finance time-value-of-money
What is the primary reason an investor would NOT early exercise an American call option on a non-dividend-paying stock?
- The investor would have to pay the full strike price immediately, increasing their capital gains tax liability.
- The stock's volatility is expected to decrease, which would make the option less valuable in the future.
- The option's time value is positive, and exercising would capture only the intrinsic value while forgoing the interest earned on the strike price.
- American options can only be exercised at the end of the day, making intra-day price movements irrelevant.
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