Question

An investor would not choose to exercise early and at the same time put and call options with the same exercise price.

Is this true or false? Give your explanation.

Answer 1

The given statement is TRUE because investors should not be choosing to exercise early and same time put and call option because this call option are having the same exercise price and if the investor is having an expectation of one side movement of the company then he should be exercising the other option and vice versa.

Like if an investor is having a expectation that stock will be going up, then he would be trying to exercise the put option early because put option value does not fall much and he will be trying to retain the call option and exercises in the long run when he will gain through upside movement.

similarly when the expectation of the investor is that the stock is going to go down, then he will be retaining the put option and he will exercising the call option early because he would be trying to save a higher amount of money on the call option and he would be trying to maximize the amount of the put option through downside of the stock.

The given statement is TRUE as investor would not be exercising early both the the call option as well as put option at the same time.