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Exercise

• To implement the right of the holder of an option to buy (in the case of a call) or sell (in the case of a put) the underlying security.

• To invoke the right to buy or sell granted under terms of a listed options contract.

• Is the action taken by the holder of an option or convertible security to convert his derivative position into the underlying security, commodity or futures. In the case of the option the exercise of a call would give the owner of the call the underlying instrument or cash settlement adjustment. In the case of a convertible bond, the owner of the bond terminates that contractual relationship in exchange for shares in the corporation. The owner of the option is the only one that exercises. However, there are mandatory exercises for expiring options that are in-the-money by more than the stipulated threshold amount. Also, there may be built-in event options that take priority over the owner of the securities right to exercise. Nevertheless, this nesting of options still defers to rules that establish which party holds, which options.

 
 Embedded terms in definition
 Bond
Buy
Call
Cash settlement
Cash
Commodity
Contract
Convertible bond
Convertible security
Convertible
Corporation
Derivative
Event
Exchange
Futures
Listed
Options contract
Options
Option
Position
Right
Securities
Security
Sell
Settlement
Shares
Take
Underlying security
Underlying
 
 Referenced Terms
 Abandon: Refers to the decision not to Exercise an option or, sometimes, a clause. It may also refer to the intentional or unintentional lack of use, maintenance or affirmation process about assets. These assets may include securities, bank accounts, refunds, trademarks and so on. In such cases the property can go to a jurisdiction such as a state or federal government.

 American style option: Is an option which permits Exercise prior to the indicated expiration date. This compares to an European Style option which can only be exercised on the expiration date.An option contract that can be Exercised at any time between the date of purchase and the expiration date. Most exchange-traded options are American style.

 Assignment: The receipt of an Exercise notice by an options writer that requires the writer to sell (in the case of a call) or purchase (in the case of a put) the underlying security at the specified strike price.Is the action for the seller of the option of acquiring the opposite position when an option is Exercised. When a put is exercised, the writer receives a long position in securities or a long futures contract. When a call is exercised, the writer receives a short position in the securities or a short futures contract.A voluntary liquidation procedure by which a firm's creditors pass the power to liquidate the firm's assets to an adjustment bureau, a trade association, or a third party, which is designated the assignee.

 At the money: Is an option which has an Exercise or strike price that is the same as the underlying instrument at current market valuations.An option is at-the-money if the strike price of the option is equal to the market price of the underlying security. For example, if xyz stock is trading at 54, then the xyz 54 option is at-the-money.

 Automatic exercise: Occurs after an option expires. Each exchange and its clearing house has rules which govern this Exercise. There are minimum in-the-money requirements. A holder of an option must inform the clearing house not to automatically exercise an option. These instructions not to exercise may be due to relatively high transaction costs, increases in position limits, or unacceptable alterations in position profiles. Also, after hours trading indications may suggest dramatically different prices than those used to determine the automatic exercise in-the-money amounts.

 
 Related Terms
 Automatic exercise
Early exercise
Exercise or option price
Exercise price
Exercise value

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