Article The Rules for Exercising Options

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Dec 19, 2004
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You probably know that a Call option gives you the right to buy a stock at a fixed price; and that a Put option gives you the right to sell a stock at a fixed price. These rights are what give the option its value. When you take advantage of these rights it is called exercising options.
When Should You Exercise Option Calls or Puts? Under what conditions would one want to exercise the rights the option gives? The answer is that exercising options is almost never beneficial. Only a small fraction of the options that are created are ever exercised, and for good reason.
Does this mean that most option buyers are buying something worthless? Not at all. It just means that there is almost always a more profitable way to close out an option trade than by exercising it.
First let’s look at call options, which give you the right to buy the stock. When you buy a call option, there are three ways that the trade could play out, at your discretion:

You could do nothing with the call...
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