Early american option exercise choice?

[PhilMtx]

hi Everyone,
when I covered options, weeks ago, I had the following note.
It is advantagous to exercice an american option early:
1 - if you are the holder of a put
2 - if you are the holder of a call with an underlying generating Cash Flows
3 - if you are deep in the money on a call on future

One SHOULD NOT exercice a Call early if it does not generate CFs.
I cannot remember, why ? at first glance, I would think, great the option is in the money, I should exercice it.

would you know the answer to that ?

Thanks in advance
-Phil

 

[S2000magician]

When you exercise an option, all you get is the intrinsic value.
When you sell an option, you get the intrinsic value plus the time value. If the time value is positive, it’s better to sell it than to exercise it.

 

[cgy5478]

1) Exercising the put early will allow you to capture the profit if you think the stock is undervalued and will start to go up.
2) Holders of calls do not get the dividends but stock prices will go down ex dividend date. Therefore, it is wise to exercise early and get that dividends you would have missed if you hadnt exercised.
3) I think you are talking about calls on forwards vs calls on futures.
Forwards do not generate CF until they expire anyways so theres no point exercising the call early to enter into the forward. However, because of the marked to market feature on futures, it can be beneficial to exercise the in-the-money option early to enter into the future and capture the CF.
However, I would probably exercise a deep in the money call even if it doesnt gerenate CF to lock in profit.

 

[PhilMtx]

thank you !!