How do you tell whether an option is American or European style?

By Albert Phung AAA
A:

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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