Consider Options That Are Identical in All Respects Except for the Differences

question 10

Multiple Choice

Consider options that are identical in all respects except for the differences that are mentioned.Then which of the following statements is INCORRECT?

• A) Exercise an American call the first time its price is equal to the stock price minus the strike price.
• B) Exercise an American put the first time its price is equal to the strike price minus the stock price.
• C) Exercise an American put early when the stock price is small enough relative to the strike price with consideration for the time to maturity.
• D) Never exercise early an American call on a stock that pays no dividends over the option's life.
• E) The only times when it may be optimal to exercise early an American call would be just after the stock goes ex-dividend.

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