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

Early exercise of an American option is rare but can be beneficial in specific scenarios. For a call option on a dividend-paying asset, exercising just before the ex-dividend date allows the holder to capture the dividend.

For put options, early exercise can be advantageous if the option is deep in-the-money and the holder wants to receive the cash proceeds to invest elsewhere, especially if interest rates are high. In essence, it becomes a trade-off between the remaining extrinsic value of the option and the benefit gained from owning the underlying asset immediately.