Early exercise is when an option holder exercises their right to buy or sell the underlying stock before the option expires (before expiration Friday).
Dividend Calls: Call buyers often exercise early before the ex-dividend date to collect the dividend.
Deep ITM Options: Options far in-the-money might be exercised to capture intrinsic value.
Rare: Most traders close options instead of exercising. Early exercise only happens maybe 1-5% of the time.
Dividends: If a call is deep ITM and a big dividend is coming, exercising gets you the stock to collect the dividend.
American Options: US options can be exercised anytime. European options can only be exercised at expiration.
If you sell a call and it's exercised early, you're assigned before you expected. This is why covered call sellers who own dividend stocks sometimes get early assignment.
Early exercise is rare, but it happens most on dividend dates. If you're a seller, just be prepared to be assigned before expiration.
Related: Exercise, Assignment, Ex-Dividend Date, Dividend
