Investors should always early exercise an American call options with dividends. Do you agree? Why?
Investors should always early exercise an American call options with dividends. Do you agree? Why?
Homework Answers
Stock prices tend to lower when the company announces it's dividends and this affects the option prices. Dividends announced will decrease the call premium. Hence we'll agree that it's better to exercise a call option with dividends. The effect should be considered both by the issuers and holders. But early exercise makes sense only when stock dividends are being announced else it is meaningless. The call exercise may happen quite likely on a day before stock's ex-dividend date.
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Investors should always early exercise an American call options with dividends. Do you agree? Why?
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