An American put option is sometimes exercised early because:
A)The holder of an in-the-money option believes that the stock has bottomed out and expects the stock to rise in the future.
B)The absolute time value of the option is larger than the insurance value.
C)The volatility of the stock has just increased.
D)The skewness of the stock has just increased from its initial level.

Question

Quizplus · Accepted Answer

The time value of a put is always negative,and when it becomes larger than the insurance value,it is optimal to exercise the put option.This is the same as having the absolute time value exceed the insurance value.

An American Put Option Is Sometimes Exercised Early Because