What Does it Mean to Exercise?

Any time an option contract is traded, there's a buyer and a seller. The buyer has rights, which they can exercise, while the seller has obligations upon which they can be assigned. Exercising an option is when a buyer calls upon a seller to fulfill the terms of their obligation as a result of this arrangement. If an investor has purchased a call option, exercising would enable them to buy the underlying security at the option's strike price. If an investor has purchased a put option, exercising allows them to sell the underlying security at the strike price. For the call seller, assignment means they must deliver the underlying security, or cash depending on the option. For a put seller, the assigned obligation would be to buy the underlying at the strike. Learn more about the fundamental terms of options trading, including exercise and assignment, in our Options Glossary, which covers the key terms.