Why Not Exercising the Option

On May 2012, you bought 10 call option of stock: The Walt Disney Company (NYSE:DIS)
Current price     :      $43.50
Strike price        :      $45.00
Expiration          :      21 June 2012
Option Price       :     $2.00 per share
(one option contract represent 100 shares) 

Today, 23 May 2012, DIS stock price goes up to $ 50.00, and the call option you bought now traded at price $4.50 per share. You decided to reap the profit, two things you can do

To exercise the option...

You pay $45,000 to buy 1,000 shares of  DIS and sell 1,000 stocks at market price $50 per share, the profit you gain is $3,000 after minus the option cost. Total return 3,000/47,000 = 6.38%.

To sell the option...

 You sell your option at $4.50 per share,  profit $1500 ($350 - $200). Your return is 2500/2000 = 125%.

If you wish to exercise the option, you need to have enough CASH in your brokerage account which is $45,000 in above example. In fact, selling the option is more profitable than exercising it.