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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.