The Skinny on Options: Abstract Applications

Why Are Options Rarely Exercised?

The Skinny on Options: Abstract Applications

Options involve risk and are not suitable for all investors. Please read Characteristics and Risks of Standardized Options before deciding to invest in options.

Most options are never exercised. This simple fact is due to two reasons. First, any option that is out-of-the-money, or worthless, is not going to be exercised. But second, even the options that are in-the-money, and have some degree of “moneyness”, will rarely be exercised. This is simply because anytime an option is exercised, the long side of the option’s contract is forgoing any extrinsic value left in the option.

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