medium · 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 owe the full strike price immediately upon exercise, which raises their near-term realized capital gains tax liability
- The stock's implied volatility is expected to decrease sharply going forward, which would make holding onto the option noticeably less valuable
- 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-style options can technically only be exercised at the market's official close each trading day, making intraday price swings entirely irrelevant
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