Exercise
Exercise is the act of invoking an option’s right — buying the underlying with a call or selling it with a put at the strike price.
Only the long holder can exercise. American-style options can be exercised any time up to expiration; European-style only at expiration. Most equity traders close positions in the market rather than exercise.
The OCC automatically exercises options that finish at least $0.01 in-the-money at expiration unless the holder opts out.
Example. Exercising a 100-strike call means buying 100 shares at $100; if the stock is $107, you immediately hold shares worth $700 more than you paid.
FAQ
Should I exercise or sell my option?
Selling usually captures remaining time value, which exercising forfeits; most traders close in the market unless they want the shares.
When are options automatically exercised?
The OCC auto-exercises options $0.01 or more in-the-money at expiration unless you instruct otherwise.