What does it mean when you exercise an option?
In options trading, “to exercise” means to put into effect the right to buy or sell the underlying security that is specified in the options contract. To exercise an option, you simply advise your broker that you wish to exercise the option in your contract.
What is the best way to exercise options?
- Cash for stock: Exercise-and-Hold. You purchase your option shares with cash and hold onto them.
- Cashless: Exercise-and-Sell. You purchase your option shares and then and immediately sell them.
- Cashless: Exercise-and-Sell-to-Cover.
What happens when an options contract is exercised?
Exercising a stock option means that a trader purchases or sells the underlying stock associated with the options contract at the price set by the contract, which is called the strike price. This price may differ from the current market price of the stock.