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Exercised Option

An exercised option occurs when the holder of an options contract chooses to execute their right to buy or sell the underlying asset at the specified strike price. For call options, exercising means buying the underlying asset, while for put options, it means selling the asset. Exercising an option is typically done when the option is in-the-money, meaning the current market price of the asset is favorable compared to the strike price. Exercising options can result in significant gains or losses depending on the market conditions, and it is a crucial decision for options traders to maximize their strategy’s effectiveness.

Example

An investor exercises a call option to buy shares of a company at a strike price of $50 when the market price is $60, securing a profit.

Key points

• Occurs when the holder of an options contract executes their right to buy or sell the underlying asset.

• Call options are exercised to buy, and put options are exercised to sell.

• Typically exercised when the option is in-the-money, providing a financial advantage.

Quick Answers to Curious Questions

Exercising an option means executing the right to buy or sell the underlying asset at the specified strike price.

Options are usually exercised when they are in-the-money, providing a favorable market price compared to the strike price.

When a call option is exercised, the holder buys the underlying asset at the strike price, potentially realizing a profit.

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