Chapter 02 · Section 2.1

Exercising Options-1

Now let us consider when it is profitable to exercise an option: Suppose you are the holder of a PHLX DM call option.

You will most likely decide to exercise when the option is:

• a) out-of-the-money.
  No. When a call option is out-of-the-money, the price of the underlying asset is lower than the exercise price. By exercising the option, you would pay more than you would have paid for the underlying asset had you bought on the spot market.
  b) at-the-money.
  c) in-the-money.
  d) None of the above affect the decision to exercise.

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