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Related to Exercise the Option: call option, European call option


To implement the right of the holder of an option to buy (in the case of a call) or sell (in the case of a put) the underlying security.
Copyright © 2012, Campbell R. Harvey. All Rights Reserved.


In option contracts, to buy (in the case of a call) or sell (in the case of a put) the underlying asset. The option holder has no obligation to exercise the option, and only does so if he/she believes it benefits him/her. Depending upon the nature of the option, this may be done at any point during the life of the contract, or it may only be done on the contract's expiry date. The strike price of the sale is agreed-upon in the option contract, that is, before the option is exercised.
Farlex Financial Dictionary. © 2012 Farlex, Inc. All Rights Reserved


To require the delivery (for example, a call option) or to force the purchase (for example, a put option) of the option's underlying asset. Many options expire without being exercised because the strike price stated in the option is unfavorable to the holder.
Wall Street Words: An A to Z Guide to Investment Terms for Today's Investor by David L. Scott. Copyright © 2003 by Houghton Mifflin Company. Published by Houghton Mifflin Company. All rights reserved. All rights reserved.


When you act on a buying or selling opportunity that you have been granted under the terms of a contract, you are said to exercise a right.

Contracts may include the right to exchange stock options for stock, buy stock at a specific price, or buy or sell the security or product underlying an option at a specific exercise price.

For example, if you buy a call option giving you the right to buy stock at $50 a share, and the market price jumps to $60 a share, you'd likely exercise your option to buy at the lower price.

Dictionary of Financial Terms. Copyright © 2008 Lightbulb Press, Inc. All Rights Reserved.
References in periodicals archive ?
CHART A COMPARISON OF COST--YEAR 15 Uninsured Insured Additional Cost Option Option w/ No Insurance Total Cost @ Year 15, $2,122,500 $457,275 $742,725 Life Expectancy Net Present Value $1,020,959 $346,909 $230,312 @ 5% Total cost includes the amount needed to exercise the options ($1,200,000) plus the projected amount needed to pay the estate taxes on the value of the stock once exercised ($922,500).
Proactive planning can enable executives holding stock options to develop sound strategies for when and how to exercise the options. Here is a simple three-step optimization process:
When the ex-wife later exercised the options, the employer issued a Form 1099 to the husband for the difference between the stock's FMV at the time of the ex-wife's exercise and the amount paid to exercise the options. The husband included this amount in income on his tax return for the year in which the ex-wife exercised the options; however, he later filed a refund claim.
To exercise the option, A transferred to X 40 shares of X common stock that he had purchased on the open market on June 1, 1999 for $5 per share.
However, A could exercise the options only after he performs additional services.
It would also require corporations that provide ISOs as compensation to furnish workers who exercise the options with a Form 1099-like declaration of their expected tax liability by January 31 of the following year.
Jones must remain an employee of Entity X for three years to exercise the options. Under FAS 123(R), Entity X recognizes $10,000 of compensation cost ratably over the three-year service period--if Jones remains with the company.
But, instead of rising in price, the stock drops substantially and is now worth less than what you paid to exercise the options. You sell the stock for less than the exercise price, realizing a loss.
Another means of facilitating the exercise of options is to offer loans to employees of all or a portion of the funds needed to exercise the options. Such loans should, however, be approached with caution.
The options vest two years later when the stock price is $25 per share, and executives exercise the options four years after the grant, when the stock price is $40 per share.