Early exercise in physical commodity

Discussion in 'Options' started by heech, Sep 22, 2009.

  1. heech


    Hi there,

    A few weeks/months back on this forum, there was a long discussion of early exercise of equity options. The conclusion was that early exercise should only happen if dividends are involved, ie dividends greater than residual value.

    But I just had some deep ITM puts in soybean oil exercised today. About 10% from the market, with 4 days until expiration. Settlement value last night was something like $30.

    Granted, it's not a lot of money. But why would someone throw away even $30, and exercise early?
  2. MTE


    First of all, DO NOT assume that someone just threw away $30. If they exercised then there was a good reason for this. I'm no expert in commodity options, but the logic tells me that the principle is pretty much the same - if one is cheaper than the other then you go with the cheaper one.