What is exercise?Exercise
When an option buyer uses their right, buying (call) or selling (put) the underlying at the strike price.
Learn “exercise” in an animated lesson
- Options BasicsThe Option Seller
The seller of an option gets paid up front but takes on an obligation. Compare the risks of a short call and a short put.
- Options BasicsWhat Is an Option?
Pay a small amount now for the right to buy (or sell) at an agreed price later. Think of it like a deposit on a house.
- Options: Next StepsCovered Calls: Collecting Rent on Your Shares
You already hold 100 shares, so you sell 1 call to collect a premium. If the stock doesn't rise you earn extra income; if it soars, your shares get bought at the strike. You trade upside for cash.
- Options: Next StepsExercise, Assignment and Expiration Day
What actually happens on expiration day? In-the-money options are auto-exercised, sellers get randomly assigned, and your shares and cash change hands. Plus, why exercising early usually doesn't pay.
Related terms
See how “exercise” works for yourself with an animation you can drag and play.
Go to “The Option Seller”