Exercising option purchase 2025

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The purchaser of an American-style option owns the right to exercise (buy or sell the underlying security at the predefined price) at any time up until the expiration date. The seller of the option is obligated to meet the terms of the contract. However, it does not always make sense to exercise the option.
Buying an option entails limited downside risk in the form of option premium but unlimited upside potential if the price moves in your favour. On the other hand, when you sell options you have limited upside in terms of premium income but unlimited downside risk if the price movement is against you.
Its ALL about the extrinsic value remaining in your calls. When you exercise an option, you forfeit all remaining extrinsic value in the option. So it is almost always better from a financial standpoint to sell the options and buy the stock.
Exercising a Call allows you to buy the underlying position at the strike price, if the account supports the exercise. You decide how long to hold the position open as long as the account continues to support the shares.
As many have pointed out, exercising options creates a loss of any remaining time value, so generally speaking, you wouldnt exercise unless you were close to expiration and time value is negligible.
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Its often wrong to exercise an option rather than sell it unless you want to own a position in the underlying stock. Be sure to close it through an offsetting sale if the contract is in the money heading into the expiration and you dont want it exercised.

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