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.

BREAKING DOWN '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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RELATED FAQS
  1. What happens when a security reaches its strike price?

    In the derivatives market, moneyness describes the situation in which a derivative is either in the money, at the money or ... Read Full Answer >>
  2. When holding an option through expiration date, are you automatically paid any profits, ...

    Holding an option through the expiration date without selling does not automatically guarantee you profits, but it might ... Read Full Answer >>
  3. What do all of the letters in a stock option ticker symbol mean?

    The option ticker explains four main things about the option: the underlying stock, whether it is a call or a put option, ... Read Full Answer >>
  4. How do you tell whether an option is American or European style?

    As a quick recap, American-style options are options that can be exercised at the strike price anytime before or on the date ... Read Full Answer >>
  5. Can an option be exercised on the expiration date?

    The use of options has increased dramatically over the years as a way to profit from or hedge against the volatile movements ... Read Full Answer >>
  6. How does a forward contract differ from a call option?

    Forward contracts and call options are different financial instruments that allow two parties to purchase or sell assets ... Read Full Answer >>

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