How Does the Early Exercise Feature of American Options Affect Their Premium? ⎊ Path

How Does the Early Exercise Feature of American Options Affect Their Premium?

The ability to exercise an American option at any time before expiration adds value to the contract. This increased flexibility means that the premium (price) of an American option will generally be higher than an otherwise identical European option.

The holder is paying more for the optionality of early exercise, which can be strategically advantageous.

How Does ‘Time Decay’ (Theta) Affect an Option’s Premium?

What Is the Concept of ‘Put-Call Parity’ and Does It Hold for American Options?

Does the Early Exercise Feature Apply to American-Style Put Options as Well?

What Are the Two Main Components of an Option’s Premium?

How Does the Dividend Yield of the Underlying Asset Affect the Value of an American Option?

Why Are European Options Typically Less Expensive than American Options?

What Is the Primary Advantage of the Early Exercise Feature of an American Option?

How Does the Concept of Early Exercise Affect the Premium of an American Call Option?

Glossar

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.