Exercising an option without paying for the underlying

Unless you want to own the actual shares, you should simply sell the call option.By doing so you actual collect the profits (including any remaining time-value) of your position without ever needing to own the actual shares.

Please be aware that you do not need to wait until maturity of the call option to sell it. Also the longer you wait, more and more of the time value embedded in the option's price will disappear which means your "profit" will go down.

It would be nice if the broker could be instructed to clear out the position for you, but in my experience the broker will simply give you the shares that you can't afford, then freeze your account because you are over your margin limit, and issue a margin call.

This happened to me recently because of a dumb mistake: options I paid $200 for and expected to expire worthless, ended up slightly ITM, so they were auto-exercised on Friday for about $20k, and my account was frozen (only able to close positions). By the next Monday, market news had shifted the stock against me and I had to sell it at a loss of $1200 to meet the margin call. This kind of thing is what gives option trading a reputation for danger: A supposedly max-$200-risk turned into a 6x greater loss. I see no reason to ever exercise, I always try to close my positions, but these things can happen.

As other answers state, selling the options contracts to the market is a definite way out, and probably the best in most cases. If you're determined to exercise your options (or there's not enough liquidity to reasonably sell your contracts to the market), then you could plan ahead and exercise smaller number of contracts at a time and sell the resulting position in the underlying, which will give you funds to exercise some more contracts and sell the underlying. If you think you're going down this path, however, make sure that you take into account your broker's rules for settlement. You may need to start the exercise / sell cycle before the option's expiration date.

Yes, this can be all resolved by placing a call to the broker and submitting a "Do Not Exercise" order. If it expires ITM and you don't want the shares then you just forfeit the premium paid for the contracts.

You may want to Sell part of the number of contracts ( say 18 out of 20) and use that proceed along with 10K that you have. So later 2 options will be exercised.

Also you said 200 * 300 = $600,000 and it should be 2000 * 300 = $600,000

Yes it is possible to do what you are asking. See following two transaction types at Fidelity:

https://www.fidelity.com/products/stockoptions/exercise.shtml

Initiate an Exercise-and-Sell-to-Cover Transaction

Exercise your stock options to buy shares of your company stock, then sell just enough of the company shares (at the same time) to cover the stock option cost, taxes, and brokerage commissions and fees. The proceeds you receive from an exercise-and-sell-to-cover transaction will be shares of stock. You may receive a residual amount in cash.

The advantages of this approach are:

benefits of stock ownership in your company, (including any dividends) potential appreciation of the price of your company's common stock. the ability to cover the stock option cost, taxes and brokerage commissions and any fees with proceeds from the sale.

Initiate an Exercise-and-Sell Transaction (cashless)

With this transaction, which is only available from Fidelity if your stock option plan is managed by Fidelity, you may exercise your stock option to buy your company stock and sell the acquired shares at the same time without using your own cash.

The proceeds you receive from an exercise-and-sell transaction are equal to the fair market value of the stock minus the grant price and required tax withholding and brokerage commission and any fees (your gain).

The advantages of this approach are:

cash (the proceeds from your exercise) the opportunity to use the proceeds to diversify the investments in your portfolio through your companion Fidelity Account

I know this is like 6 years old, but I just ran into this issue too. The short answer is it depends on the brokerage.

I have TD Ameritrade. I had 8 options (800 shares) @ $40 strike price. It was in the money and I stood to make a pretty solid profit. But if I were to try and exercise the option, TD would want me to have all $32K (800 * $40) in my account, even though the shares would be immediately liquidated for profit.

This can be circumvented if you apply for margin trading. But you have to qualify for that separately, and margin trading can introduce new levels of risk.

For some other brokerages - Robinhood, for example - you can be approved for options and margin trading right away.