S. Wade Hansen

Option Styles: American vs. European

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Option traders have to deal with many more variable and factors in their trading than stock traders do. And while many investors are acquainted with the basic differences between call options and put options, most investors are unfamiliar with the different option styles available to them.

Options are divided into two broad styles, or categories: American-style options and European-style options.

Actually, these two option styles have more in common than not. Both American- and European-style call and put options share the following standard characteristics:

• Both have a set strike price.
• Both have a set expiration date.
• Both use similar structures for their ticker symbols.
• Both are traded on exchanges.

However, these option styles have one significant difference: when you are able to exercise them. (You can learn more about this difference in the American and European Style Options video.)

American-Style Options

American-style options are the options that most individual investors are acquainted with.

If you trade options on stocks, like Apple (AAPL), General Electric (GE) or Google (GOOG), you are most likely trading American-style options.

You can exercise American-style options any time you want to before expiration.

For instance, if you buy an American-style option on Wal-Mart (WMT) today and it expires in one month, you can exercise it today, tomorrow, the next day or on any other trading day until the option expires.