Early exercise is an important risk when call bear spreads and put bull spreads are used.

Question

Quizplus · Accepted Answer

Early exercise means that the option holder exercises their option before the expiration date. This can be a risk for the option seller if the option is in-the-money as they may be forced to sell or buy the underlying asset earlier than expected. In the case of call bear spreads and put bull spreads, the option seller may be exposed to early exercise by the holder of the short position if the long position is in-the-money.

Early Exercise Is an Important Risk When Call Bear Spreads