When you act on a buying or selling opportunity that you have been granted under the terms of a contract, you are said to exercise a right.
Contracts may include the right to exchange stock options for stock, buy stock at a specific price, or buy or sell the security or product underlying an option at a specific exercise price.
For example, if you buy a call option giving you the right to buy stock at $50 a share, and the market price jumps to $60 a share, you'd likely exercise your option to buy at the lower price.
- Browse Related Terms: assignment, At-the-money, Automatic exercise, Call, Call option, Covered option, Exercise, Go short, Green shoe clause, In-the-money, Incentive stock option (ISO), Long position, Naked option, offset, Option, Option premium, Put option, Short position, Stock option, Strike price, Uncovered option, Writer
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