7.14 Early exercise Usually, there is some chance that an American option will be exercised earl An exception is an american call on a non-dividend paying stock This should NEVER be exercised early 1. No income is sacrificed Strike price is paid later 3. Holding the call provides insurance against stock price falling below strike price Options, Futures, and Other Derivatives, 4th edition@ 2000 by John C. Hull Tang Yincai, Shanghai Normal UniversityOptions, Futures, and Other Derivatives, 4th edition © 2000 by John C. Hull Tang Yincai, Shanghai Normal University 7.14 Early Exercise • Usually, there is some chance that an American option will be exercised early • An exception is an American call on a non-dividend paying stock – This should NEVER be exercised early 1. NO income is sacrificed 2. Strike price is paid later 3. Holding the call provides insurance against stock price falling below strike price