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Welcome to your source for answers to questions about option concepts, strategies, and terminology. A new question and answer is published each week. To view the Ask the Institute archives, click the "Ask the Institute Archive" link below.

Please note, questions WILL NOT be personally answered and may not be chosen for publication on the web site.

View the archive of all "Ask the Institute" questions.

 

This week's question:

DATE: September 05, 2014

QUESTION:

Why would an investor exercise a call option prior to the expiration date?

ANSWER:
There are several points for an owner of a call to consider if they want to exercise their call prior to the expiration date. First, the owner of the call should actually want to buy the underlying stock. Second, the call should be in-the-money. Third, the stock should pay a dividend. And, fourth, the time value of the call should be close to zero. To learn more about why an investor would exercise a call option prior to expiration, view this segment of "Ask the Institute."

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