What does it mean to exercise an option?

Exercising an option is the process of converting the option contract into shares of stock for the underlying asset. As an option buyer, you have the right to exercise at any time. When an option contract is exercised, the owner of the option invokes the right to buy or sell stock.

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.

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.

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.