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The option exercise pipe dream
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AT-March 2009-4
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In theory, there's no difference between theory and practice. But in practice, there is.
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Detailed Description
Options literature mentions three ways to exit positions. A trader can allow a long option to expire worthless, offset it, or exercise it. Much of the time these alternatives are presented as equally attractive.
In situations in which the underlying instruments price is higher than a call-option strike price or lower than a put-option strike price, options texts often deem exercise the obvious thing to do.
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