As a quick recap, American-style options are options that can be exercised at the strike price anytime before or on the date of expiration. European-style options, on the other hand, are options that can only be exercised at the time of expiration.

All other things being equal, American-style stock options tend to cost more than equivalent European-style options for the same stock. The reason for this is that an American-style option gives its holder more opportunity to use the option and, therefore, a holder pays more for that privilege.

Nearly all exchange traded stock options, such as those issued for companies like Microsoft and Sony, are American-style options. Interestingly enough, financial index options can be issued as either American- or European-style options. For example, S&P 100 Index options are traded as American-style options, whereas the Nasdaq 100 Index options are traded as European-style options.

You can always check to see whether a stock index is American or European style by visiting 888-options.com's listing of stock indexes.

To read more about options, see Options Basics and The Four Advantages Of Options.

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  2. What is index option trading and how does it work?

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  3. How can derivatives be used to earn income?

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  4. Do options make more sense during bull or bear markets?

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  5. How do speculators profit from options?

    As a quick summary, options are financial derivatives that give their holders the right to buy or sell a specific asset by ... Read Answer >>
  6. Does the seller (the writer) of an option determine the details of the option contract?

    The quick answer is yes and no. It all depends on where the option is traded. An option contract is an agreement between ... Read Answer >>
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