What Is the Relationship between the Early Exercise Boundary and the Option’s Intrinsic Value?
The early exercise boundary is directly related to the option's intrinsic value. Exercise becomes optimal when the option's intrinsic value, plus the immediate benefits of exercise (like investment income), exceeds the option's total value if held.
The boundary is the point where the intrinsic value is high enough to trigger the optimal exercise decision.
Glossar
Intrinsic Value of a Put Option
Valuation ⎊ The intrinsic value of a put option, within cryptocurrency derivatives, represents the immediate profit obtainable through exercising the option versus acquiring the underlying asset in spot markets.
Early Exercise Boundary
Threshold ⎊ The specific price level at which it becomes mathematically optimal to exercise an American style option before its expiration date defines this limit.
Immediate Benefits of Exercise
Response ⎊ Exercise within cryptocurrency, options, and derivatives markets provides an immediate reduction in systemic risk exposure through dynamic hedging strategies.
Intrinsic Value
Valuation ⎊ This represents the in-the-money amount of an option, calculated as the difference between the spot price and the strike price, if positive, otherwise zero.
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.