What is the reason that only a minor percentage of options get exercised (17%, I read on the OIC website)? If on expiration, the option is in the money, it will be either automatically exercised, or the option owner should exercise it to realize his profit.
What I can think of is (call option scenario):
If he does not exercise, his loss=premium paid
If he exercises, his profit = spot price - strike price - premium paid - transaction costs.
If this number > premium paid, he should exercise.
So why are so few options exercised? Is the condition #2 that rare?