Exercise
Using the right an option grants, which means buying the underlying at the strike with a call or selling it at the strike with a put.
When a holder exercises, the Options Clearing Corporation assigns the exercise to a clearing member, which allocates it to a customer who is short the same series, and that customer must deliver or take delivery of the shares at the strike. American-style options, which include standard U.S. equity options, can be exercised on any business day up to and including the expiration date. European-style options, which include many index options, can be exercised only at expiration, and index options settle in cash.
Exercising early gives up any time value left in the option, so selling the option can collect more than exercising it.
Illustrative example (hypothetical numbers, not a real trade): a holder of one $40 call exercises when the stock is at $46 and pays $4,000 for 100 shares worth $4,600. If the call was still trading at $6.30, selling it would have collected $630, which is $30 more than the $600 of intrinsic value captured by exercising.