Early Exercise Premium
Early Exercise Premium — Extra value from American exercise rights versus European.
Definition
Early Exercise Premium refers to extra value from American exercise rights versus European. Keep that definition fixed when comparing series, managers, or regimes — renaming the same tape does not create a new signal.
Why it matters
Options and futures embed views on vol, skew, and path that cash markets only hint at. When extra value from American exercise rights versus European shifts, related hedges, limits, and narratives usually need an explicit update rather than a quiet assumption.
Case
Suppose a desk is positioned for the opposite of what early exercise premium is saying. If extra value from American exercise rights versus European moves against that book, the first question is not “is the story clever?” but whether size, hedges, and stop logic still match the observation.
How to read it
State the expiry and Greek exposure; unmarked vol or pinning effects rewrite the thesis. Prefer a short written null hypothesis for Early Exercise Premium: what would falsify the current reading in the next window?