@Sig - You persist (for the third time) in putting words in my mouth: The fact you feel the need to utilise expletives like 'moron' and 'fuck' tells me enough. Thank you for your replies, I think we can agree that this discussion is pointless to continue. I wish you well in your trading,
Dude this isn't a debate you "win" or need to save face in. You've been repeatedly told by a bunch of people on this thread each of whom has significantly more trading experience and finance education that you, that your understanding of options is simply incorrect and incomplete. That's a learning experience for you, and the measure of what kind of person you are can be seen in your ability to take it as such or decide to get all hypersensitive and continue to argue as if you know wtf you're talking about and everyone else in the world with experience and education in this area is wrong. You need look no further than @Maverick74 and my discussion earlier in this thread to see how mature adults discuss and learn from that discussion. Two free lessons for you in one thread!
Hi When in a thread participates people like @Martinghoul @Sig and especially @Maverick74 and @JackRab it is better to shut up and listen. I want to say something because the theory sometimes desviates us from the reallity. 1_ ITM american calls are only early exercicsed the day before the stock goes ex dividend. Otherwise the holder will lose the dividend value. But ITM american puts are exercised more frequently, because yes it is optimal for the holder to exercise an american ITM put option early. And that is because of the interest, as @Maverick74 said. That is a fact, and is also true that this happens more frequently as the expiration day approaches. I have experimented that hundreds of times, so that is reallity. 2_ American style options and European style options of course have differences in the price. An ITM european put will discount the interest, so it would be priced sometimes below the intrinsic value but with an american one it is not possible, because it would be very easy to buy and early exercise the same day. That is my opinion and my experience. But yes I reconize I am a newbie and still learning.
@Raf Only Sig is being obtuse here in insisting I am saying stuff I am not. In fact most of what Sig says I agree with except that he's making points on stuff I never claimed in the first place. As he is now in full troll-bully mode trying to provoke a flame war, there is no point in talking to him. However, As my own words appear not to come across let me give a literal quote from Jeff Augen p. 484 Option trading strategies: I am sure Elite-trader option Guru status trumps bibliographic quotes ;-) on here. It is of no consequence. Mere assertions and boasts of 'nailing intrinsic' (which is besides the point completely) in a post decorated with expletives compared to a reasonable argument documented with sources remains more relevant to me no matter how relevant and insightful other posts of the same person may be.
In the effort to dumb down a market effect, the quote is conflating two issues that are unrelated. Technically an option's underlying is the forward. For most underlyings the forward is close to the spot price. Only in the VIX is the forward often way off from the spot price and this is because each maturity is derived by a completely different set of options - they don't have to have any relation to eachother other than some arbitrage free pricing on the listed surface. While he says the European-ness of the call means a lower expected VIX level in the future, this is because that call is really pricing to the forward and that forward isn't rallying as much because the market is expecting the vix to go down in the future so the calls that price off that forward don't rally. This isn't a European issue as much as it's how the April VIX is actually a completely different underlying than the May VIX whereas the Sep ES is basically the same as the Jun ES.
Calls are also exercised early in hard to borrow stock, in order to get long stock, which will happen quite frequently.