When Can An Option Be Exercised

An option can be exercised by a buyer at any time from the point of purchase to the designated cut-off time on the very last trading day, as stipulated by the brokerage firm that a trader is using.  To know the cut-off time, the trader has to check with the brokerage firm that he is using. When an option is exercised, the right to buy or sell occurs at a specific price, that is, it occurs at the strike price or exercise price of the option contract.

There are some misconceptions that traders have regarding the exercise of options. Let us examine some of them.

Misconception 1

Options can only be exercised when they are in the money. This is wrong. Irregardless of the moneyness of the option, an option can be exercised by the buyer or holder of the option.

Misconception 2

Options can only be exercised after the expiration date of the option. This is also a common misconception held by novice traders.

Misconception 3

Options can only be exercised on expiration date. This is another commonly held misconception.

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Exercise & Assignment process

Read also :

Understand That Option Sellers Are Assigned When The Option Buyer Exercises

Understanding Option Strike price(Exercise price)