Excercising Options Mandatory
Is it mandatory to exercise an option/warrant/convert as soon as the exercise pürice is below the market price? And if not, would it actually make any sense to wait longer?
Option contracts give you the right but not the obligation to exercise either selling or buying 100 shares of the underlying stock. In american options (which are the most widely used), you can exercise anytime before or at the expiry date. It might make sense to wait if you speculate the underlying will move further in your favor so you can sell the contract at a higher price without exercising.
So assuming the underlying stock further appreciates - can a sale of the option at a later stage be advantageous to exercising the option now and holding the stock while it further appreciates?
It can be either better or worse. If the premium of the contact increases due to an increase in implied volatility then holding it is smarter. But usually, the time value of the contact decreases each day (theta), so the premium of the option will decrease with time.
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