American Style Option
An American style option gives the buyer the right - but not the obligation - to buy or sell an asset at a set price at any point up to and including the expiry date.
This is different from a European style option, which can only be exercised on expiry. The American style option offers more flexibility, which may be beneficial if market conditions move in the buyer’s favour before the option expires.
These options are common in the US but are available toUK investors through certain brokerages and platforms, like Investa, particularly when trading stocks, ETFs or index options listed on US markets.
Please note that the terms “American” and “European” refer to the exercise style of the option contract and do not indicate the geographic location of the investor or the underlying asset.
Why American Style Options matter for investors
Understanding whether an option is American or European style helps investors manage their strategy. Here’s some facts about American style options:
- The ability to exercise the option any time before expiry
- Potential for early exercise in fast-moving markets
- Greater flexibility which may impact portfolio management decisions
That said, early exercise isn’t always the best choice-and these options may carry higher premiums reflecting the added flexibility and risk.
Be mindful, options are high risk investments due to their complex nature and are not suitable for all investors.