what is exercise 
exercise means to put into effect the right to buy or sell the underlying financial instrument specified in an options contract in options trading the holder of an option has the right but not the obligation to buy or sell the option s underlying security at a specified price on or before a specified date in the future understanding exerciseif the owner of an option decides to buy or sell the underlying instrument instead of allowing the contract to expire worthless or closing out the position they will be exercising the option or making use of the right or privilege that is available in the contract an options holder may exercise their right to buy or sell the contract s underlying shares at a specified price also called the strike price to exercise an option you simply advise your broker that you wish to exercise the option in your contract your broker will initiate an exercise notice which informs the seller or writer of the contract that you are exercising the option the notice is forwarded to the option seller via the options clearing corporation occ the seller is obligated to fulfill the terms of an options contract if the holder exercises the contract the decision to exercise an option isn t always a clear cut one there are several factors that need to be considered and more often than not it s safer to hold or sell the option instead the majority of options contracts are not exercised but instead are allowed to expire worthless or are closed by opposing positions for example the holder of an option can close out a long call or put prior to expiration by selling it assuming the contract has market value if an option expires unexercised the holder no longer has any of the rights granted in the contract in addition the holder loses the premium they paid for the option along with any commissions and fees related to its purchase things to consider when exercising an option