American vs European Option
Exercise style: American options can be exercised any time before expiry (most single-stock options); European options only at expiry (most cash-settled index options like SPX).
American-style options can be exercised by the holder on any trading day up to and including expiration. Most single-stock and ETF options listed in the US are American style, which means short option positions carry early-assignment risk.
European-style options can only be exercised at expiration. Most cash-settled index options — SPX, XSP, NDX — are European. Because early exercise is impossible, European options are simpler to price and eliminate early-assignment surprises.
The distinction matters practically: short American calls on dividend-paying stocks are at risk of early assignment the day before ex-dividend, since the option holder may prefer the dividend to the remaining time value. European-style holders cannot do this.
Related Terms
Assignment
The process by which an option seller is required to fulfil their obligation — delivering or buying the underlying — when the buyer exercises.
IntermediateCall Option
An options contract giving the buyer the right to purchase the underlying asset at the strike price before or on expiration.
BeginnerExercise
The act of an option holder invoking their right to buy (call) or sell (put) the underlying at the strike price.
IntermediateExpiration Date
The last date on which an option can be exercised; after this date the contract ceases to exist.
IntermediatePut Option
An options contract giving the buyer the right to sell the underlying asset at the strike price before or on expiration.
Beginner