What is a Stock Option:
Before we begin, you need to understand what is a stock option first.
So here's a link to help you understand what is a stock option.
Continue reading after you understand what's a stock option 😉.

TDLR (Too Long Didn't Read) of a Stock Option
A stock option is a 'contract' that lets you buy a specific stock at a specific price by a specific date.
Eg; I pay $1 to buy a stock option that allows me to buy 1 Microsoft share at $50 before August 2020.

Scenario 1: I exercise my stock option
I can exercise the stock option to buy the Microsoft share, and my total cost of the share is $51 ($50 + $1).
It makes sense to exercise my stock option when Microsoft's share price is above $51 (eg; $52) because then I can sell it straight to the stock market and profit from the difference.

Scenario 2: I don't...