Exercise
The act of using an option’s right: a call holder buys shares at the strike, a put holder sells shares at the strike. American-style equity options can be exercised any time up to expiration; index options are typically European-style and settle in cash at expiration only.
Exercising early throws away any remaining extrinsic value, so it is rarely optimal — the main exceptions are deep in-the-money calls just before a dividend and deep puts when carrying costs dominate.
Most option positions are closed by trading out of them, not by exercise. The right matters mostly because someone on the other side can use it, which is what assignment risk is about.
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