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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.
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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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Plain vanilla? Exotic? Learn about the different option flavors and how they can be used.
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These two options have many similar characteristics, but it's the differences that are important.
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The ability to exercise only on the expiration date is what sets these options apart.
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