Subject: Re: out of the gate strong
...However, in practice they will never do so so long as they can get more benefit by selling the option on the market while it still has some time value in it.
...
I don't understand that last sentence. Sure, whoever bought the call can sell it, but that just means the owner changed, not that the option went away. So the new owner could exercise. In fact, if an option is ITM, why would it not be exercised (other than transaction costs being more than the profit from an exercise and immediate sell, but with transaction costs being minuscule these days, it would have to be only very slightly ITM for letting it expire to make sense)?

Well, first, technically it might mean that the option truly went away. Depending on the trajectory of trading in an option, the number of outstanding contracts can change. There may be no new owner.
But, ignoring that...

My reasoning also applies to the new owner of the contract.
Say it's a call option to buy XYZ at $100 a share. XYZ is trading at $105. The bid/ask on the contract is 7.50/ 7.80.

Imagine you own this contract and want to take your profit. You could exercise it and get XYZ shares for $100 which are trading at $105, realizing $5 in profit (mark to market basis, or sell the shares right away).
Or you could sell that contract today for $7.50. $7.50 profit is a whole lot more than $5 profit. Which would you do?
If you want the shares, you can simply buy them.

As the contract gets closer to expiry (or the other things that erode time value), the bid available for the contract will gradually fade away until it's no better than what you'd get exercising the contract, and at some point will become worse.
At that point, it makes sense to exercise. But as a general rule, it doesn't make sense before that.

Sometimes it will happen that someone will exercise such a contract, but is really is very rare. And when it happens, it's often a small subset of the number of contracts you're short. I'm not sure why it would happen. Dumb money? Maybe an unusual tax or regulatory situation preventing the sale of the option or changing the relative benefit?
In any case, it's very rare.

Back to your question... if an option is ITM, why would it not be exercised...
the answer is "it will"...but not until that's the best way for the holder to get their profit, which as a rule happens only close to the expiry date.
So long as there is some time value that the holder can realize, it's not their best alternative, so it usually doesn't happen.

Jim