Can Options EVer be Excercised Early?

Discussion in 'Options' started by fakie99, Mar 23, 2008.

  1. fakie99


    can options on stock or stock indices ever be excercised prior to the expiration date under any circumstances?

    i have been trading options (long calls/puts) only for a few months and i have wondered about this for a while.....

  2. yes
  3. Equities are american exercise (you can exercise early). Most cash settled indicies (SPX, XEO, DJX, RUT, VIX et. al) are european exercise (no early exercise).

    One notable exception is OEX (S&P 100), which is american exercise. OEX options have a slight premium over XEO options becuase of the possible early exercise.
  4. fakie99


    thx, thegazelle, that is interesting to learn. i have put on credit spreads on equities without knowing this important fact!

    how are options on equities exercised early anyhow? and can i assume that once a position has moved against me and my sold options are ITM that they will be exercised on me?

    thanks again.
  5. fakie99


    "Most cash settled indicies (SPX, XEO, DJX, RUT, VIX et. al) are european exercise (no early exercise). ",

    what are XEO, DJX, RUT, etc? are they etf's? if they are the actual index, how would i go about trading them?
  6. They are options on the actual index. If you want to trade the index, either find an ETF that tracks it, trade the futures or synthesize a position with options.
  7. wbtrader


  8. Johno


    Although early exercise on American exercise options is possible[ I've never had this occure] anybody wishing to do so will forgo the time value component of their option. Generally speaking it would be more cost effective to close out their options thru selling them on the open market! Remember option volitility usually increases as options near expiry!


  9. fakie99


    good list....thanks.

    i see your point about exercising early and losing out on the time value component.

    am i being too worreid about trading early-exercisable ETFs? it seems to me that i'd want to liquidate the short options the second the index moved close to my short strike, if there is a chance of early exercise. but that would also guaratee that i am losing money on these trades (and the index moving toward one of my short strikes is to be expected over the course of the spread.)

    i don't want to avoid american style exercise options just becuase of that, especially if it is not too common an occurence.
  10. Johno


    I'm not sure what you are referring to, your first post discusses long option positions and then your post to me talks about short options management as the index approaches the strike.
    Could you please clarify your question!


    #10     Mar 24, 2008