American style versus European style options

Summary

American style options can generally be exercised before expiry, while European style options are exercisable only at expiry or during a defined expiry window. The difference matters because it changes when exercise and assignment can happen.

Definition

American style versus European style options refers to when the holder is allowed to exercise the contract. An American style option can generally be exercised up to expiry, whereas a European style option is exercisable only at expiry, or during a defined window at expiry. In the article’s practical framework, this is more than a technical label: American style exercise means writers must assume assignment can happen whenever the option is exercisable, while European style products focus operational attention more tightly on expiry processing and settlement conventions. Traders therefore need to verify style before entry, especially if early assignment risk would change management of the position.

Sources

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