Early exercise is a disadvantage in which of the following transactions?
A)short box spread
B)put bear spread
C)long strip (2 puts and 1 call)
D)long strap (2 calls and 1 put)
E)none of the above

Question

Quizplus · Accepted Answer

In a short box spread, early exercise would result in forfeiting the time value of the options, reducing the potential profit from the transaction. Early exercise is generally not a disadvantage in put bear spreads, long strips, or long straps as they involve the purchase of options rather than the sale of options. Option buyers have the right, but not the obligation, to exercise the option, and they would only exercise if it was beneficial for them to do so.

Early Exercise Is a Disadvantage in Which of the Following