Suppose an investor wishes to "cash-in" an in-the-money American call option (on a nondividend paying stock)that has lots of time until expiration. The investor will be better off trading the option to another investor rather than exercising the option early.

Question

Quizplus · Accepted Answer

If the option is in-the-money and has lots of time until expiration, the investor can sell it to another investor at a higher price than they would receive by exercising the option early. This is because the time value still has value and the other investor may be willing to pay a premium for that time. Additionally, by selling the option instead of exercising it, the investor can avoid the transaction costs and potential tax implications of exercising the option.

Suppose an Investor Wishes to "Cash-In" an In-The-Money American Call