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Answer: It can be optimal to exercise an American-style put option on a non-dividend-paying stock early.
The correct answer to the question regarding the early exercise of American-style options is option B. It states that "It can be optimal to exercise an American-style put option on a non-dividend-paying stock early." This is because, unlike American call options on non-dividend-paying stocks, which should never be exercised early as it would be financially disadvantageous, American put options can sometimes be exercised early if they are deeply in the money. This is due to the time value of money concept, where the benefit of receiving the strike price now could outweigh the potential future gains from holding the option until expiration. However, it's important to note that this is a conditional situation and not universally applicable to all American put options.
Author: LeetQuiz Editorial Team
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In the context of options trading, particularly focusing on American-style options, which of the following statements accurately reflects the considerations related to the early exercise of these options?
A
It is always optimal to exercise an American-style call option on a non-dividend-paying stock before the expiration date.
B
It can be optimal to exercise an American-style put option on a non-dividend-paying stock early.
C
It can be optimal to exercise an American-style call option on a non-dividend-paying stock early.
D
It is never optimal to exercise an American-style put option on a non-dividend-paying stock before the expiration date.
