Why is an American call option rarely exercised early,and thus priced similar to European options?
A) Early exercise requires purchasing the stock
B) Most option sellers cannot deliver the stock
C) Option prices usually exceed intrinsic values
D) Short sellers disrupt delivery

Question

Quizplus · Accepted Answer

American call options are rarely exercised early because their price often includes not just the intrinsic value (the difference between the stock price and the strike price), but also time value. Time value represents the potential for further increase in the stock's price. Exercising the option early forfeits this time value, making it financially less advantageous in most cases.

Why Is an American Call Option Rarely Exercised Early,and Thus