How Does the Concept of 'In-the-Money' Relate to the Decision to Exercise an American Put Option Early? ▴ Learn

How Does the Concept of ‘In-the-Money’ Relate to the Decision to Exercise an American Put Option Early?

An American put option is 'in-the-money' when the strike price is greater than the underlying asset's price. Unlike call options, early exercise of an American put option can often be rational.

If the put is deep in-the-money and the underlying asset's price is near zero, exercising early maximizes the profit. The proceeds can then be invested, earning interest that outweighs the remaining time value.

When Is an American-Style Put Option Most Likely to Be Exercised Early?

When Might Early Exercise of an American Put Option Be Rational?

Under What Circumstances Would an Early Exercise of an American Option Be Beneficial?

How Does a ‘European’ Style Option Restrict the Exercise Relative to an ‘American’ Style Option?