Does Early Exercise Always Result in a Loss for the Option Writer?
No, early exercise does not always result in a loss. The writer has already received the premium, which offsets the loss on the underlying transaction.
If the option is exercised deep-in-the-money, the writer incurs a loss on the position, but this is a realized loss, not necessarily a total loss, and is often managed through hedging. The writer's maximum profit is always the premium received.
Glossar
Option Writer
Strategy ⎊ The Option Writer, within cryptocurrency derivatives, assumes a short position in an options contract, obligating them to fulfill the contract's terms if the option is exercised by the holder.
Writer
Obligation ⎊ A writer, within cryptocurrency and derivatives markets, assumes contractual obligations through the sale of options or the shorting of underlying assets, establishing a defined liability contingent upon future price movements.
Early Exercise
Right ⎊ Early Exercise is the contractual privilege granted to the holder of an American-style option, allowing them to invoke the rights of the contract at any point before the specified expiration date.