Why you should never exercise an option early? For an American call (on a stock without dividends), early exercise is never optimal. The reason is that exercise requires payment of the strike price X. By holding onto X until the expiration time, the option holder saves the interest on X.
What happens if I exercise my call option before expiration? Choice #2: Exercise the call or put option early. By definition if you own a call option you have the right to buy stock at the strike price of the call option. If you exercise your call option, you will be given stock at the strike price of the call option.
What happens if I exercise my options early? If you early exercise your options as soon as they’re granted, you likely won’t owe additional taxes (at the time of exercise) because you’re buying them at fair market value (assuming there’s no spread between what the stock is currently worth and how much you paid).