Exercising an equity call option prior to expiration ordinarily provides no economic benefit as: It results in a forfeiture of any remaining option time value; Requires a greater commitment of capital for the payment or financing of the stock delivery; and May expose the option holder to greater risk of loss on the stock relative to at опцион option premium.
Nonetheless, for account holders who have the capacity to meet an increased capital or borrowing requirement and potentially greater downside market risk, it can be economically beneficial to request early exercise of an American Style call at опцион in order to capture an upcoming dividend. All other things being equal, the price of the stock should decline by an amount equal to the dividend on the Ex-Dividend date.
While option pricing theory suggests that the call price will reflect the discounted value of expected dividends paid throughout its duration, it may decline as well on the Ex-Dividend date. The conditions which make this scenario most likely and the early exercise decision favorable are as follows: 1.
The option is deep-in-the-money and has a delta of ; 2. The option has little or no time value; 3. The dividend is relatively high and its Ex-Date precedes the option expiration date.
Also assume that the option price and stock price behave similarly and decline by the dividend amount on the Ex-Date. Here, we will review the exercise decision with the intent of at опцион the share delta position and maximizing total equity using two option price assumptions, one in which the option at опцион selling at parity and another above parity.
Here the cash proceeds are applied in their entirety to buy the stock at the strike, the option premium is forfeited and the stock net of dividend and dividend receivable are credited to at опцион account.