STSM112050 | Derivatives: introduction to options: Exercise

If a holder of an option decides to take-up his right under the terms of an option contract to buy or sell an underlying asset according to the agreed ‘strike’ (see STSM112010) price, then they are said to have exercised the option. When this happens the option issuer or writer is obligated to deliver the underlying asset or to arrange to pay the equivalent cash amount (see STSM112060).