Regarding deep in-the-money options on futures, it is: A) sometimes worthwhile to exercise calls early but not puts. B) never worthwhile to exercise puts or calls early. C) sometimes worthwhile to exercise both calls and puts early Compared to the value of a call option on a stock with no dividends, a call option on an identical stock expected to pay a dividend during the term of the option will have a: A) lower value only if it is an American style option. B) higher value only if it is an American style option. C) lower value in all cases.
Compared to the value of a call option on a stock with no dividends, a call option on an identical stock expected to pay a dividend during the term of the option will have a: A) lower value only if it is an American style option. B) higher value only if it is an American style option. C) lower value in all cases. This is D in DIVUTS - and having Dividend will reduce all Call options. So C. Regarding deep in-the-money options on futures, it is: A) sometimes worthwhile to exercise calls early but not puts. B) never worthwhile to exercise puts or calls early. C) sometimes worthwhile to exercise both calls and puts early I am guessing B here.
C? Worthwile to exercise C & P as you get the MTM cashflow early in the game which you could reinvest. C? Stock is paying dividends, which are not coming to you yet (as you have not yet exercised). So American or European the value will be lower if the underlier is a income producing entity.
- No clue. Does it have something to do with cost of storing… contagion/backwardation?? 2) C. Price is expected to drop by dividend amount after ex div date. I think this would hold for both European and American style, although effect on European might be less.
Remember DIVUTS for the Dividends Interest Rate Volatility Underlying Time to Expiration Stock Price and DUUUUD (D=Down, U=Up) for Calls UDUDUU for Puts this is when each item goes up on the DIVUTS
Your answer: A was incorrect. The correct answer was C) sometimes worthwhile to exercise both calls and puts early. If puts or calls on futures are significantly in-the-money it may be worthwhile to exercise them early to generate the cash from the immediate mark to market of the futures contract when the option is exercised SG- can you explain this any better? For some reason this isn’t clicking in my brain. Your answer: C was correct! An expected dividend during the term of an option will decrease the value of a call option. I said 25 a day on weekdays- my first quiz 20/25 on SS17. I’ll take it.
My understanding is that if you have an option that’s heavily in the money you may want to exercise it because who knows what will happen in the future? It could become lower in the money later or out of the money depending on what happens with the underlying, so why not exercise it early if you can and take the gain?
The way I thought about it was if we have a Call option on a Future where X = 10 and FP = 20 and since it’s deep in the money you can exercise the call option and purchase the future contract at $10. When the trading day ends and Futures are marked-to-market that time the differential of 20-10 (gain of $10/contract) will be settled in your margin account and you will get money before-hand to re-invest it, than to wait for the option to come to the expiry-date. The interest differential gained on the re-invested (early) cash received will be the gain of early exerices. Had a routine 5 mile run, now dinner and then Equity SS 34. 