Does the Underlying Asset’s Volatility Influence the Decision to Exercise an American Option Early?
Yes, volatility is a significant factor. Higher volatility increases the chance of future large price swings, which in turn increases the option's time value.
Since early exercise means forfeiting all remaining time value, higher volatility generally discourages early exercise, as the potential future gains from holding the option outweigh the immediate benefit of exercising.
Glossar
Volatility Influence
Factor ⎊ Volatility influence refers to the profound impact that the rate and magnitude of price fluctuations in an underlying asset have on the valuation and behavior of its associated financial derivatives.
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.