American style option

Summary

An American style option can be exercised on any business day up to and including expiration. In this article, that matters mainly for many equity options, where early exercise can lead to share delivery before expiry.

Definition

An American style option gives the holder the right to exercise at any point on a business day up to and including the expiration date, rather than only at the end. In the context of options across securities, this is a practical distinction because many US equity options are American style and physically settled into shares if exercised or assigned. That means exercise timing, assignment risk and settlement planning can matter before expiry, unlike many broad-based index options that are European style. The article stresses that exercise style is part of the product specification and should be checked alongside settlement type, multiplier and last trading day before trading.

Sources

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