How Does the Early Exercise Boundary for a Put Option Change as Expiration Approaches?
As expiration approaches, the early exercise boundary for an American put option moves closer to the strike price. This is because the time value of the option decreases, and the opportunity cost of waiting (forgone interest) becomes more significant relative to the remaining time value.
This increases the incentive to exercise early for a deep in-the-money put.
Glossar
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.
Exercise Boundary
Trigger ⎊ The exercise boundary, within cryptocurrency options and derivatives, defines the price level at which an option transitions from being out-of-the-money to in-the-money, initiating potential exercise or assignment.
Incentive to Exercise Early
Rationale ⎊ The Incentive to Exercise Early is the economic condition under which the immediate realization of an American option's intrinsic value outweighs the remaining time value and the opportunity cost of capital.
Early Exercise Boundary
Trigger ⎊ The early exercise boundary, within cryptocurrency options, represents a price level of the underlying asset that incentivizes the holder of an American-style option to exercise it prior to its expiration date.