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For the average retail options trader do most buy options in the hopes of exercising it or do most buy options , resell and profit of the net of the premiums by doing so, much like buying and reselling stocks ?

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    You can look at this answer for a numerical example discussing early exercise and why it's mostly inefficient to do so.
    – AKdemy
    Commented Dec 26, 2023 at 0:50

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When purchasing options with the intention of exercising them, you must either have a substantial amount of cash readily available (for executing a call) or possess a significant quantity of unwanted stocks (for executing a put).

This situation typically arises when the market moves against an investor, catching them off guard. Thus, they buy options as a form of insurance, commonly referred to as hedging.

The majority of retail traders acquire options not primarily for hedging purposes, but rather as a form of extreme leverage due to the large price swings. Therefore, they typically refrain from exercising the options and instead focus on reselling them.

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Exercising an option is almost always suboptimal. It may happen that inexperienced retail investors exercise options that they shouldn't but overall, you should at least understand the very basics of options before trying to buy options.

Ultimately, that's part of the reason why most retail option traders lose money. Options are complicated securities and not knowing what you buy / sell is usually a bad thing.

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Most of the time, it makes more sense to sell to close an option rather than exercise it because exercising early throws away the time premium. That's dumb money. If no time premium remains, it still makes more sense to STC the option rather than exercise because there is less slippage and fees.

If the option is in-the-money and the bid is trading below intrinsic value, it makes sense to exercise and close in order to avoid the haircut (assuming that you have sufficient margin as well as the appropriate trading privileges). If there is a pending dividend, this gets a bit more complicated and I'll leave it to you to research that.

When exercising to close a position, manage the risk with the correct order sequence (close the underlying first).

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