{"id":2622,"date":"2010-03-05T16:40:38","date_gmt":"2010-03-05T11:10:38","guid":{"rendered":"http:\/\/www.niftylivecharts.com\/blog\/?p=2622"},"modified":"2010-03-05T16:40:38","modified_gmt":"2010-03-05T11:10:38","slug":"american-option-styles-vs-european-option-styles","status":"publish","type":"post","link":"https:\/\/www.niftylivecharts.com\/blog\/american-option-styles-vs-european-option-styles\/","title":{"rendered":"American Option Styles vs European Option Styles"},"content":{"rendered":"<p>An option style refers to whether the option contract can be exercised before the expiration date or not. European options cannot be exercised before the expiration date of the option contract. American options can be exercised by the option holder (the option buyer) any time during the life of the contract.<\/p>\n<p>American-style options are options\u00a0that can be exercised\u00a0at the strike price\u00a0anytime before or on the\u00a0date of expiration. European-style options, on the other hand,\u00a0are options that can only be exercised\u00a0at the time of expiration.<\/p>\n<p>All other things being equal, American-style stock options tend to cost more than\u00a0equivalent European-style options\u00a0for the same stock.\u00a0The reason for this is that an American-style option gives its holder more opportunity to use the option and, therefore,\u00a0a holder pays more for that privilege.<\/p>\n<p>Nearly all exchange traded\u00a0stock options, such as\u00a0those issued for companies like Microsoft and Sony,\u00a0are American-style options.\u00a0Interestingly enough, financial\u00a0index options can be issued as\u00a0either American- or European-style options.<\/p>\n<p>The key difference between American and European options relates to when the options can be exercised:<\/p>\n<ul>\n<li>A <strong>European option<\/strong> may be exercised only at the <strong>expiry      date<\/strong> of the option, i.e. at a single pre-defined point in time.<\/li>\n<li>An <strong>American option<\/strong> on the other hand may be      exercised at <strong>any<\/strong> time before the expiry date.<\/li>\n<\/ul>\n<p><strong> <\/strong><\/p>\n<p><strong>Difference in value<\/strong><\/p>\n<p>European options are typically valued using the Black Model formula. This is a simple equation with a closed-form solution that has become standard in the financial community. There are no general formulae for American options, but a choice of models to approximate the price are available.<\/p>\n<p>Where an American and a European option are otherwise identical (having the same strike price, etc.), the American option will be worth at least as much as the European (which it entails). If it is worth more, then the difference is a guide to the likelihood of early exercise.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>An option style refers to whether the option contract can be exercised before the expiration date or not. European options cannot be exercised before the expiration date of the option contract. American options can be exercised by the option holder (the option buyer) any time during the life of the contract. American-style options are options\u00a0that [&hellip;]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_genesis_hide_title":false,"_genesis_hide_breadcrumbs":false,"_genesis_hide_singular_image":false,"_genesis_hide_footer_widgets":false,"_genesis_custom_body_class":"","_genesis_custom_post_class":"","_genesis_layout":"","footnotes":""},"categories":[1],"tags":[7020,7022,7021],"class_list":["post-2622","post","type-post","status-publish","format-standard","category-general","tag-american-option-styles","tag-american-vs-european-option-styles","tag-european-option-styles","entry"],"_links":{"self":[{"href":"https:\/\/www.niftylivecharts.com\/blog\/wp-json\/wp\/v2\/posts\/2622","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.niftylivecharts.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.niftylivecharts.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.niftylivecharts.com\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.niftylivecharts.com\/blog\/wp-json\/wp\/v2\/comments?post=2622"}],"version-history":[{"count":0,"href":"https:\/\/www.niftylivecharts.com\/blog\/wp-json\/wp\/v2\/posts\/2622\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.niftylivecharts.com\/blog\/wp-json\/wp\/v2\/media?parent=2622"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.niftylivecharts.com\/blog\/wp-json\/wp\/v2\/categories?post=2622"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.niftylivecharts.com\/blog\/wp-json\/wp\/v2\/tags?post=2622"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}