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What Does Exercise Option Mean?

What happens when you exercise an option? Exercising a stock option means purchasing the issuer’s common stock at the price set by the option (grant price), regardless of the stock’s price at the time you exercise the option.

Why would someone exercise an option? Exercising a put option allows you to sell the underlying security at a stated price within a specific timeframe. Exercising a call option allows you to buy the underlying security at a stated price within a specific timeframe.

Is it better to sell or exercise an option? In reality, most options are sold on the market. Option buyers always have the right to exercise their options, though most of these investors never actually exercise option transactions. Selling the options themselves can be more reliably profitable according to many investors.

Related Questions

When should you exercise an option?

Exercising an option is beneficial if the underlying asset price is above the strike price of a call option or the underlying asset price is below the strike price of a put option. Traders don’t have to exercise an option because it is not an obligation.