What does it mean to exercise an option contract? (Choose an answer from the list below; only ONE is correct.)

Any gains and losses due to changes in the market value of the underlying security are market to market, and additional margin is posted if needed.

The option is permited to expire without any transactions occuring.

We take it out for a walk in the park.

When an option is "exercised", the financial transaction specified by the contract is carried out immediately and the option is then terminated..