Trader Resources : Options Markets Basics : Exercising an Option
When an option holder decides to exercise an option, the holder is invoking his right to acquire a position on the underlying futures contract at the option's strike price. Exercising a call option results in the trader being assigned a long futures contract position at the strike price. Exercising a put option results in the trader being assigned a short futures contract position at the strike price.
Futures Positions After Option Exercise

	Call Option	Put Option
Buyer Assumes	Long Futures Position	Short Futures Position
Seller Assumes	Short Futures Position	Long Futures Position

Because option premiums contain time value, rarely should option holders exercise an option. By doing so, they are forgoing any time value left in the options contract and receiving only the intrinsic value of the option contract. The only way to collect the time value associated with an option is to sell that option. Exercising an option is economically feasible only if the time value inherent in the option is less than the added transaction costs associated with selling the option and trading the underlying futures contract to gain the position an exercised option would result in.

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