Just when you think you have a handle on the little quirks of the option market, you seem to always run into a juicy little tidbit of information to enhance your further understanding of these unique and diverse trading vehicles. So without further delay, let me introduce you to the two styles of options that are currently traded on the major option exchanges today.
American- style option
An option that can be exercised anytime during its lifetime. The majority of exchange-traded options are American Style Options. The option trader has the choice when to exercise this type of option. The may chose to exercise an American option at any point during the life of the contract. The American style option, in almost all cases is generally more valuable than European options. contract.
For example: If you bought a XYZ September 60 Call, you would have the right to exercise the call option anytime up until the final date of its expiration. (See figure 1-1 below)
FIGURE 1-1: AMERICAN STYLE OPTION CAN BE EXERCISED AT ANYTIME BEFORE THE EXPIRATION DATE.
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FIGURE 2-2: EUROPEAN STYLE OPTION CAN ONLY BE EXERCISED ON EXPIRATION DATE
Note: Even though the options are called American and European, these option styles have nothing to do with their geographical location or the location of their trading markets