Definition
Exercising an option means the holder invokes their right to buy (call) or sell (put) the underlying asset at the strike price. American options can be exercised anytime before expiration; European options only at expiration. Most profitable options are sold rather than exercised.
Example
You hold a $100 call on a stock trading at $120. Exercising means you buy 100 shares at $100, immediately worth $120 each.
FAQ
What is Exercise (Options)?
When an option holder uses their right to buy or sell the underlying asset.
Why is Exercise (Options) important?
Exercise (Options) helps investors evaluate options and make more informed decisions.
Related Terms
Option Assignment
When an option seller must fulfill the obligation of the contract.
American Option
An option that can be exercised any time before expiration.
European Option
An option that can only be exercised at expiration.
Intrinsic Value
The calculated true worth of a company based on fundamental analysis.