I had my first look at SPY options this morning and was astounded by the huge volumes and super tight spreads. I got all excited. Later on, I discovered that the options were American style options. Excitement turn to confusion. I had always assumed that all index options were European.
I know that there will be circumstances when American style options will be exercised early. For example, equity call options deep ITM my be exercised just before the underlying stock goes ex-dividend. However, I'm not too familiar with reasons for exercising index options early.
Can I please get help on these questions? For American style index options:
1. Are there circumstances where the option buyer may wish to exercise early?
2. Are the occurrences of early expiries of rare?
3. Has anyone personally been exercised early?
4. Would income traders be put off by American style index options?