Exercise
The act of an option holder invoking their right to buy (call) or sell (put) the underlying at the strike price.
Exercising an option means the holder converts the contract into the underlying transaction at the strike price. For a call, the holder buys shares at the strike. For a put, the holder sells shares at the strike (or receives the intrinsic value in cash-settled contracts).
Most retail traders do not exercise options — they sell to close instead, capturing both intrinsic and remaining time value. Exercising discards the time value remaining in the premium.
Automatic exercise applies at expiration for options $0.01 or more in the money (OCC rule), unless the holder instructs otherwise.
Related Terms
American vs European Option
Exercise style: American options can be exercised any time before expiry (most single-stock options); European options only at expiry (most cash-settled index options like SPX).
IntermediateAssignment
The process by which an option seller is required to fulfil their obligation — delivering or buying the underlying — when the buyer exercises.
IntermediateIntrinsic Value
The immediate exercise value of an option — how much in the money it is right now, ignoring time and volatility.
IntermediateTime Value
The portion of an option's premium beyond its intrinsic value, reflecting the probability that the option moves further in the money before expiry.
Intermediate