exercise

Think of that layaway ticket you got from a shop in Balogun market, the one that lets you pay a small deposit today and come back later to collect the item at the price written on the ticket, no matter what the market is doing by then. An option works the same way. You paid a small fee for the right to buy or sell a stock at an agreed price before a certain date, and when you finally use that right, that moment is called exercising the option.

Say a trader in Lagos bought an option giving them the right to buy shares of a bank on the Nigerian Exchange at ₦25 each, even though the price has since climbed to ₦32. If they choose to exercise, they buy at ₦25 and can turn around and sell at the higher market price, pocketing the difference. Nobody forces them to exercise though. If the market price had fallen below ₦25 instead, they would simply let the option expire and walk away, only losing the small fee they paid upfront.

In London, someone holding a call option on Tesco shares faces the same choice on expiry day. If Tesco is trading above the strike price they locked in, exercising makes sense, because they are buying cheap and the shares are already worth more elsewhere. If not, they let it lapse, same as our Lagos trader.

The beauty of options is that exercising is a choice, never an obligation for the buyer. You hold a right, not a debt. That single detail is what makes options feel less like a gamble and more like a well negotiated deposit arrangement, where you only pay the rest of the price if the deal still looks good on the day.