Does the Early Exercise Feature of American Options Increase or Decrease the Premium, and Why?
The early exercise feature of American options generally increases the premium compared to an otherwise identical European option. This is because the right to exercise early is a valuable additional benefit for the holder, especially if the underlying asset pays a dividend or, in crypto, a staking yield.
The increased flexibility means the option has a higher theoretical value, and therefore, a higher price in the market.
Glossar
Exercise Feature
Decision ⎊ The exercise feature grants the holder of a long option the unilateral right, but not the obligation, to execute the contract at the agreed-upon strike price before or at expiration.
American Options
Exercise Timing ⎊ American Options grant the holder the right, but not the obligation, to execute the option at any point up to and including the expiration date, offering maximum flexibility in managing exposure to underlying asset price movements in crypto derivatives markets.
Early Exercise Feature
Feature ⎊ The Early Exercise Feature is the defining characteristic of American style options, permitting the holder to execute their contractual right to buy or sell the underlying asset before the official expiration date.
Early Exercise
Trigger ⎊ Early exercise, within cryptocurrency options and financial derivatives, denotes the right ⎊ but not the obligation ⎊ of the option holder to realize the intrinsic value of the contract prior to its scheduled expiration date.