header bg

Scan QR code or get instant email to install app

Question:

Consider the following statements:
Statement 1: There is never a reason to exercise an American call option early.
Statement 2: There is never a reason to exercise an American put option early.
Which of the following is most likely if the underlying on the options is a non-dividend-paying stock?

A Only Statement 2 is incorrect.
explanation

•At times it may be beneficial to exercise an American option on a dividend-paying stock early. However, there is never a reason to exercise an American call option on a non- dividend-paying stock before expiration.
• An American put option may be exercised early if the underlying company is in or nearing bankruptcy.