What is the exercise value?
Exercise value is the value of the option that is paid before the expiration date established in the contract. There may be cases in which the value of the exercise is in favor of a person who holds the possibility, in which case there may be motivation to apply this option before it expires. In other cases, the value is low or the investor would take the loss, in which case the investor would wisely hold the possibility to obtain greater value. For call options, the value of the exercise is calculated by comparing the current price with the strike price. If the current price is lower than the strike, it is reportedly "in money", the reference to the fact that the purchase would be advantageous. If the current price is higher, the value of the exercise would be a loss for the buyer.
On the other hand, optics give people a contract that allows them to sell the set number of units for a given strike for the expiration date. In this case, people also compare the price of the strike and the current price to determine the value of the exercise. If the strike isThe price is lower, is the choice in money, because the current price would generate more profit for the holders. If the strike price is higher, there is no motivation for sale at the current price, because the option holder will earn more money by hanging on the contract until it expires.
Association on the language of possibilities can become quite complex. There are a number of variables that can be manipulated in the development of the contract and achieve an agreement. When purchasing options, it is important to realize all the terms of the contract well to avoid incorrect investment. It is possible to be imprisoned in a contract that is not advantageous, which can lead to financial losses and when the money is tied in one contract, it cannot be invest in something more favorable.
people who trade with possibilities seek to diversify their investments, as well as other investors to distribute the risk. When deciding on purchase and sale, it may be important to be aware of the exercise value of the options agreement.