What does it mean to exercise an option?

To exercise an option means to put into effect the right specified in the options contract. Advertisement. An options contract gives the buyer the right, but not the obligation, to buy or sell an underlying security at a specified price on or before an expiration date.

What is exercise in options trading?

What Is Exercise? Exercise means to put into effect the right to buy or sell the underlying financial instrument specified in an options contract. In options trading, the holder of an option has the right, but not the obligation, to buy or sell the option's underlying security at a specified price on or before a specified date in the future.

How do I exercise a put option?

To exercise an option, you simply advise your broker that you wish to exercise the option in your contract. If the holder of a put option exercises the contract, they will sell the underlying security at a stated price within a specific timeframe.

Who can exercise an options contract?

Options buyers are the only party that can exercise an options contract. When exercising a call option, you are buying the underlying stock at the strike price. Conversely, if you exercise a put option you will be short the underlying stock at the strike price.