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Options
American Style
Few
are aware but there are actually three distinct classifications of
options. All options
traded in the United States are American-style. These options allow the holder to exercise at any time on,
or prior to the expiration date. After the expiration date the option becomes worthless as a
financial instrument.
European-style
options are different from the American-style option in that
holders are permitted to exercise only during a specified period
prior to the expiration date. As you may have guessed by the name, these options are
popular in Europe.
The capped option goes one step further; the period for which the
option can be exercised is limited and dependent upon the option
reaching a capped value prior to expiration. If this value is reached the option is executed
automatically.
Given
the restrictions of European and capped-style options most North
American investors should be pleased that all options traded here
are American-style -- but exercising an option is just one of the
two ways to close an open option position.
Both
holders and writers of all options can close positions by simply
completing an offsetting transaction in the open market prior to
expiration. In the
case of a holder, the call or put option may be sold in the open
market. In the case
of a writer, the closing transaction involves buying the identical
position that was originally sold.
option
premium 
the underlying
security
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Home > Education > Using Options > Introduction
to Options > Options American
Style
