Definition of Early exercise:
Early exercise of an options contract is the process of buying or selling shares of stock under the terms of that option contract before its expiration date. For call options, the options holder can demand that the options seller sell shares of the underlying stock at the strike price. For put options, it is the converse, where the options holder may demand that the options seller buy shares of the underlying stock at the strike price.
To opt out of an investment or security before the maturity date is reached.
Early exercise is only possible with American-style option contracts, which the holder may exercise at any time up to expiration. With European-style option contracts, the holder may only exercise on the expiration date, making early exercise impossible.
How to use Early exercise in a sentence?
- Early exercise refers to buying or selling stock shares before the expiration of contract options.
- It is only possible with American-style options.
- Early exercise makes sense when an option is close to its strike price and close to expiration. Employees of startups and companies can also choose to exercise their options early to avoid the alternative minimum tax.
Meaning of Early exercise & Early exercise Definition