31 Mar 2018

Exercise Date

Finance feed by:

CA Nisha Bagla
B.com (Hons),CA
CA in Practice    •    15 Year 8 Month  experience

Exercise date refers to the date on which a trader decides to exercise an option (Call/Put) on an exchange or with a brokerage whether bought or written/sold where ‘exercise’ means making use of the actual right specified in the contract. It can be on or before the expiry date.

In the Indian context, exercise date doesn’t make much sense as options are cash settled. So, the holder of an option doesn’t have the power of exercising the actual right of an option to buy or sell an instrument on or before the expiry date. Majority of option contracts are not exercised on or before the expiry date because options are allowed to be bought/sold on an exchange before the expiry date and can expire worthless or closed by the holder/other party. 

The exercise date can also be set for the last day for which a trader may notify the exchange of his objective to exercise a Call or Put option. 

The owner of an option contract has the right to exercise his/her contract on a particular date, and therefore, requires that the financial transaction is in line with the contract specifications, which will be carried out between the two parties. If the holder decides to buy or sell the underlying instrument on the exercise date, then he or she will exercise the option at the same strike price as per the contract. 

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