What Is the Primary Advantage of the Early Exercise Feature of an American Option?
The primary advantage of the early exercise feature is the flexibility it grants the option holder to capture intrinsic value immediately. In traditional finance, this is often used to capture dividends before the ex-dividend date.
In crypto, it allows a trader to lock in profits or mitigate further losses at any optimal point before the expiration date, which is especially valuable in highly volatile markets or when anticipating a major market event.
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.
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.
Exercise Feature
Decision ⎊ The exercise feature grants the holder of a long option the unilateral right, but not the obligation, to execute the contract at the agreed-upon strike price before or at expiration.
Highly Volatile Markets
Environment ⎊ These markets are characterized by elevated levels of price dispersion and rapid, non-linear price discovery across asset classes.