Early exercise means using an option's exercise right before expiration. It is possible for American-style contracts, subject to the broker's instructions and deadlines. European-style contracts do not allow it.
Exercising generally gives up remaining time value. Dividends, financing, stock borrow, liquidity and contract terms can still affect the decision. An American-style short option can be assigned early; do not assume a protective long option will be exercised automatically.
Content reviewed:
Primary references: OIC exercising options; OIC assignment. Editorial standards.