An American call option buyer on a non-dividend paying stock will
A) always exercise the call as soon as it is in the money.
B) only exercise the call when the stock price exceeds the previous high
C) never exercise the call early.
D) buy an offsetting put whenever the stock price drops below the strike price.
E) none of these.

Question

Quizplus · Accepted Answer

The buyer of an American call option on a non-dividend paying stock would not have any benefit from exercising the option early since the option would always have time value left. Therefore, they would only exercise the option at expiration if it is in the money. It does not make sense to wait for the stock price to exceed the previous high, nor would they buy an offsetting put whenever the stock price drops below the strike price.

An American Call Option Buyer on a Non-Dividend Paying Stock