Top Things to Know About American and European Options

Options are divided into two different categories: European and American options. Option trading is a bit different than stock trading. Option traders have more factors and variables to deal with than stock traders. Most everyone is knowledgeable about call and put options but may not be aware of the different types of option styles.

American Options

American options are what most investor deal with on a daily basis. American options can be exercised anytime before the expiration date.

American options are more expensive than European options because there is the flexibility of an option holder to exercise at any time. This increases the risk because a seller cannot plan ahead.

European Options

European options are less common than American options so many individuals are unfamiliar with their workings. Unlike American options, you can only exercise the options on the day of expiration.

European Options are much less expensive than American options because they are less risky for the seller. A seller can plan ahead.

What American and European Options Have in Common?

• They both have a set expiration date


• Both are trading only on exchanges like the Dow Jones, Nasdaq and the S&P 500


• Similar structures used for ticker symbols


• Both have a set strike price