There are two styles of options, the difference between them being the time at which they can be exercised:

  1. American options allow the holder to exercise at any time before or at expiration.

  2. European options allow the holder to exercise only at expiration.

This important distinction, which does not necessarily refer to where the option was written, can dramatically affect an option's price. If the period in which the option can be exercised is a matter of months that is more valuable than if the period is just one day.

  • Most equity options are traded American-style and most debt and currency options, which will be covered soon, are traded European-style.

  • Regardless of the timing of the exercise or the nature of the commodity from which the option is derived, the investor is placing a bet that something is going to a) go up, b) go down or c) remain stable.

  • In Wall Street jargon, this means the investor is respectively a) bullish, b) bearish or c) neutral.

The following discussions on options strategies will keep things simple and focus on stock options without considering premiums.



Spread Option Strategies

Related Articles
  1. Trading

    American Vs. European Options

    These two options have many similar characteristics, but it's the differences that are important.
  2. Trading

    Dividends, Interest Rates And Their Effect On Stock Options

    Learn how analyzing these variables are crucial to knowing when to exercise early.
  3. Investing

    American Vs. European Options—Key Differences

    There are four key differences between American- and European-style options.
  4. Investing

    Getting Acquainted With Options Trading

    Learn more about stock options, including some basic terminology and the source of profits.
  5. Trading

    Options Pricing: A Review Of Basic Terms

    The following is intended as a review of basic option terminology, which can be used as a reference as needed: American Options - An option that can be at any point during the life of the contract. ...
  6. Investing

    4 Reasons To Hold Onto An Option

    There are times when an investor shouldn't exercise an option. Find out when to hold and when to fold.
  7. Investing

    Types of Options

    There are many different types of options. In addition to general put options and call option, we will discuss 13 different types of options. Some of these option types are better suited to day ...
  8. Trading

    Three Ways to Profit Using Put Options

    A brief overview of how to profit from using put options in your portfolio.
  9. Trading

    Options Hazards That Can Bruise Your Portfolio

    Learn the top three risks and how they can affect you on either side of an options trade.
  10. Investing

    Exploring The World Of Exotic Options

    Exotic options provide investors with new alternatives to manage their portfolio risks and speculate on various market opportunities. The pricing for such instruments is considerably complex, ...
Trading Center