As we have talked about, option contracts give the owner the right to exercise the option contract at any time during expiration. When this happens, the seller (called the "writer") of the option contract is assigned. Let's create a clearer picture of what this means:

It is important to remember that for every trade there is a buyer and a seller. When an investor purchases an option contract, there is a counter-party who sells them that contract. The counter-party (also called the "seller" or "writer") receives the premium that is paid by the buyer. In exchange for this premium, the seller takes on the risk of having the buyer exercise the contract.

This is where the strike price comes into play. The strike price is the price that the option contract can be exercised at. For example, if the investor owns a Google December 450 call option, they have the right to exercise the contract and purchase 100 shares of the underlying stock at $450 per share at any time before December expiration. Even if Google increases in value to $900 per share, the owner of the call option still has the right to purchase the stock for $450 per share. The seller of the call option would then have the obligation to sell 100 shares of Google to the buyer for $450.

In order to exercise an American-style contract before expiration, the investor must contact their broker and request it. At expiration, if an option contract expires in-the-money most brokers will automatically exercise the option. Therefore, the contract must be closed out prior to expiration avoid this from happening (assuming the owner of the contract does not want it exercised).