It is never optimal to exercise an american call option

Blogs Recent Entries Best Entries Best Blogs Blog List Search Blogs. It's NEVER logical to exercise an American call option early non-dividend stock? Lets think about this intuitively for a moment: If the stock plunges, you make money on the short stock instead of the option If the stock soars, you say thank goodness for the call option But suppose this happens I think there is a margin of safety exercising early I don't see how in some cases it couldn't be a sensible move.

Last edited by UFActuary; at UFActuary View Public Profile Find all posts by UFActuary.

Originally Posted by UFActuary. Gandalf View Public Profile Find all posts by Gandalf.

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But suppose this happens In simple terms, you would never want to exercise the option, got it. But in real life: And lastly there's the convenience factor: So you get my argument Well I got the idea of not being able to SELL an option when the stock price is high from this web link.

It was a question posed to the lecturer from a student. Silly logic on my part. Obviously I've never bought an option before. This may be wrong but compare the two profits: Take a look at a previously released MFE exam, I am pretty sure it stipulates no transaction or bid-ask spreads for the exam, so at least for the exam you can ignore that aspect.

I think the transactions costs and bid-ask spreads open up a new can of worms when it comes to things for MFE so it is left off, at least for now. Last edited by brandond; at Maybe I can answer this for myself.

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UFActuary isn't considering shorting the stock without exercising the option. This is where the exam gets difficult. The concepts themselves are relatively simple, but you have to use creativity for just about every problem on the exam.

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Aug Studying for FSA exams Posts: Originally Posted by UFActuary But suppose this happens Find all posts by jym. Originally Posted by UFActuary the cost of exercising early is some form of peace of mind insurance Find all posts by brandond. Ditka's Restaurant Studying for: Find all posts by ditkaworshipper. Show Printable Version Email this Page. Linear Mode Switch to Hybrid Mode Switch to Threaded Mode. You may not post new threads You may not post replies You may not post attachments You may not edit your posts BB code is On Smilies are On [IMG] code is On HTML code is Off.

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