Question

Why an American option holder chooses the first time, that the time value of option is zero, to exercise the option? Or, in other words, why not choose the last one?

Basically, what is the benefit to exercise early rather than later if time value is 0?

Can Time Value be 0 more than once? or only at expiration?

Answer 1

He chooses the first time to exercise the option because he will be having the better benefit because there would be a higher time to expiration and it will mean that he will be getting the most benefit and exercising it at the earliest possible time because there would be lower depreciation in the value of option.

As the time will be passing it will mean that the value of option will be decreasing on the time value of option front because there would be lower time which will be left for expiration.

Options are generally issued for a limited time period and when they will be exercised early they will be gaining on the front of losing on the time value of option as there will be passage of time then the time value of option will be decreasing.

Benefiting of exercising early is that he will be able to save most of his value of the call option and he will be able to be exit at benefit or or lose less of his money. if the time is passing the time value of option will be decreasing and it would be leading to reduction in the value of option so it is always preferred to exercise these options earliest as possible because it will be helping them to save most of their premium paid and higher benefits also.

Yes, time value of option can be 0 for more than once when there will be intrinsic value of the the option equalling to the option premium which has been paid and it can be at different times so it is not only at expiration.