Timing Matters: American vs. European Options | #OptionsHandbook EP007

Why does the options trading screen show “US” and “EU”? 🤔

It all comes down to option style—American vs. European. Despite the names, this has nothing to do with where the options are traded. It's not about geography, but when the option can be exercised!

Here’s how the Options Handbook breaks it down:

▶ Exercise Timing ⏰

1. American-style options:

   It can be exercised at any time from the day you buy them until they expire. More flexible, and most retail traders deal with American-style options.

2. European Options:

   It can only be exercised on the expiration date, not before. Easier to value for pricing models.

▶ Common Types 📝

In most cases, options on individual stocks and ETFs are American-style, while index options are often European-style.

▶ Why does this matter? 🧐

Let's say you're using a multi-leg options strategy, and you're the seller of one or more contracts.

If your positions are American-style, a buyer could exercise early, potentially throwing off your payoff structure.

But with European-style options, that can't happen. Since early exercise isn't allowed, your strategy remains intact until expiration. For sellers, this makes trades more predictable!

🎁 Find easy option terms and beginner-friendly strategies in the Options Handbook—now available in the Tiger Coin Center! 🐯✨

>> Redeem Options Handbook Now <<

>> Click here for the Simplified Chinese version <<