What Role Does the Strike Price Play in Determining the Optimal Early Exercise Time?
The strike price is crucial because it determines the option's intrinsic value and moneyness. For a call, a lower strike price means a higher intrinsic value, bringing the option closer to the early exercise boundary.
For a put, a higher strike price increases intrinsic value. The strike price, in relation to the underlying price, is the primary factor driving the early exercise decision.
Glossar
Strike Price
Reference ⎊ The Strike Price is the predetermined reference level set at the contract's inception against which the underlying crypto asset's spot price is compared at expiration or exercise.
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.
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.
Optimal Early Exercise
Boundary ⎊ Determining the precise moment before expiration when exercising an American option on a crypto asset yields a greater immediate payoff than holding the option until maturity.