Options mechanics
What is the mechanism of Option Exercise and when does it happen automatically?
By Easy Money Scanner · Educational reference · Not investment advice
The short answer
Exercising an option means the holder invokes their contractual right to buy (call) or sell (put) 100 shares of the underlying at the strike price through their brokerage.
How it works
Exercise can happen manually any time for American-style options or automatically at expiration via OCC's Exercise by Exception process when an option closes at least $0.01 in the money.
An example
A trader holding an ITM XYZ 50 call can submit exercise instructions to their broker before the market close deadline to receive 100 shares at $50 per contract.
Risk & limitations
Exercising forfeits any remaining extrinsic value in the option, so many traders choose to sell the contract instead of exercising to capture that time value.
Examples are hypothetical, not trade recommendations. US contract and regulatory references do not automatically apply in Canada. Rules, margin requirements and broker policies can change; confirm them with the relevant authority and your broker.