Why Is the Early Exercise Feature of American Options Rarely Used in Practice?
Early exercise is generally not optimal because the option holder forfeits the remaining extrinsic value (time value) of the option. It is typically better to sell the option in the market, capturing both intrinsic and extrinsic value, rather than exercising and only receiving the intrinsic value.
The exception is a deep ITM American Call just before an ex-dividend date.
