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Simple English definitions for legal terms
exercise value
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A quick definition of exercise value:
Exercise value: The benefit that an option holder gets from using their option.
Exercise value is the value that an option holder receives when they use their option to buy or sell an underlying asset. It is the difference between the current market price of the asset and the strike price of the option. For example, if an option holder has the right to buy a stock at $50 per share and the current market price is $60 per share, the exercise value of the option is $10 per share. This value is important because it represents the potential profit that the option holder can make by using their option.
A more thorough explanation:
Definition: Exercise value refers to the value that an option holder can derive from using the option.
For example, let's say you hold a call option on a stock with a strike price of $50. If the current market price of the stock is $60, you can exercise your option and buy the stock at the strike price of $50. This means you can immediately sell the stock for a profit of $10 per share. The exercise value of your option in this case would be $10.
Another example would be if you hold a put option on a stock with a strike price of $100. If the current market price of the stock is $80, you can exercise your option and sell the stock at the strike price of $100. This means you can immediately buy the stock back at the market price of $80 and make a profit of $20 per share. The exercise value of your option in this case would be $20.
These examples illustrate how exercise value can be used to generate profits for option holders. By exercising their options, they can buy or sell the underlying asset at a favorable price and make a profit.