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I would obviously steer clear of european options, less advantage to them as I see it unless if the strike price is reached during the agreement even if I was out of the money at the end, I would get paid. As I see it, waiting until the expiration date to exercise sounds pretty iffy to me.

2007-03-07 11:02:13 · 5 answers · asked by Anonymous in Business & Finance Investing

5 answers

Assuming you are only looking at options traded on an American exchange:

If the underlying is stock in a company or an ETF, the option is American style.

If the underlying is an index, the option may be either American style or European style. To determine which, go to

http://www.cboe.com/Products/Cash-SettledIndexOptions.aspx

and click on the underlying. That will bring up the product specifications for the index. One of the product specifications listed is "Exercise Style" which will be either "American" or "European."

I should also mention that while you would usually not exercise an option prior to expiry because you would be forgoing the time value embedded in the option, there are times you should exercise an option early.

Many,deep in the money put options have bid quotes below the intrinsic value of the options. Assumng you have low transaction costs, you will make more money by buying the underlying and immediately exercising the option instead of selling the option. Also, when the "time value" (extrinsic value) of a call option is less than the amount of an ordinary dividend about to be paid, you are likely to make more money by exercising the option just before the underlying stock goes ex-dividend.

2007-03-07 13:33:31 · answer #1 · answered by zman492 7 · 0 0

European options are little cumbersome but it can be worked up pretty much like American options. In European options when you see that your bet is wrong you can take the opposite bet. In American options what you do is an exercise at that point in time or sell to close. In America they trade only American options. Only in Europe they trade European. So Scittrade America will be dealing with American Options. Here in India they have both American and European. Some Index trades here are European. I don't know whether some options are European in America like Index.

2007-03-09 04:44:23 · answer #2 · answered by Mathew C 5 · 0 0

An option is either American or European. Period. It does not matter where it is traded or who the broker is. American can be exercised any time although doing so early gives up value. European can only be exercised at expiration. They can be traded anytime tho. Another difference is that they can actually trade with negative extrinsic value.

I'm not sure but I think Vix is a European style. Plenty of volitility in that one.

**Got curious myself and checked on the VIX today. It is in fact a European style. So as I said where it is traded or the broker is makes no difference. Most stock and index options are American style but check with your broker if you have any doubt.

2007-03-07 13:09:56 · answer #3 · answered by gatzap 5 · 0 1

They will be American. Regardless, you would never exercise an option prior to expiry because you would be forgoing the time value embedded in the option. You might sell it, but there is no reason to exercise it. So practically speaking, there's very little difference.

2007-03-07 11:10:52 · answer #4 · answered by BosCFA 5 · 1 1

If its an option on a security traded on a US exchange, then its usually American.

2007-03-07 11:11:01 · answer #5 · answered by Anonymous · 0 0

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