I’m reading this really late so i might be tired… yet some explanation would b great, thanks!
European options can only be exercised at the expiration date. American options can be exercised at an point during the life of the option thus that feature makes it at least as valuable as the European option.
that’s generally why American options are more preferable, but in this section they’re talking about the fact that futures mark-to-market feature makes American options more desirable…
Oh, sorry, I misread your post. I’ll have to look that up as I forget as well.
The put is pretty clear, yes? American puts are always better than European puts because the underlier might go to 0 (or near). For calls, if you exercise on a futures contract you get a pile of cash and a long position in the contract. If the time value of the cash (i.e., interest) is worth more than the time value of the option because its vol is low youwant to exercise the option early. Hence, American call > European call.
usif, could you clarify your question. Greater value on futures than …?
An American call option on any asset is not worth exercising as opposed to trading because its value trading it would be greater than exercising it UNLESS there is an expected or assured cash flow on the underlying asset whose present value could be more than the extra return on trading the option. This can happen for assets like stocks which pay a dividend (especially just before the ex-dividend date) or with futures contracts which could earn interest on the margin in the futures account if exercised and in a favorable position (ofcourse the mark to market helps realize the favorable position). Hope that helps.