European Option

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DEFINITION of 'European Option'

An option that can only be exercised at the end of its life, at its maturity. European options tend to sometimes trade at a discount to its comparable American option. This is because American options allow investors more opportunities to exercise the contract.

INVESTOPEDIA EXPLAINS 'European Option'

European options normally trade over the counter, while American options usually trade on standardized exchanges. A buyer of an European option that does not want to wait for maturity to exercise it can sell the option to close the position.

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