Investor Glossary-american optionInvestor Glossary-american optionInvestor Glossary-american optionInvestor Glossary-american optionInsightful stock market charts - Click here
investor
Categories    # A B C D E F G H I J K L M N O P Q R S T U V W X Y Z

American Option

The HTML to link to this page
 

There are several different types of options, but the American option is the most heavily traded on most of the world's option exchanges. The next most traded option is the European option. The key difference between an American option and a European option is that the American option can be exercised at any time before its expiration date. The European option can only be exercised on its expiration date.

An American option is more valuable because of the freedom in terms of when the investor can choose to exercise the contract. For example, an investor may choose to buy the December 30 calls on XYZ Inc. in May when the stock is trading at $20. The stock then moves to $30 in August, bringing those December 30 calls into the money. Using an American option, the investor can sell his calls at a profit. A European option cannot be exercised before December, putting the investor at risk of losing his profits. Under this scenario, there is no such risk with an American option.

The term American option has nothing to do with location or region. The American option is traded primarily on exchanges as opposed to over the counter.



Rate this American option definition...

Learn about investing with the Investor Glossary Term of the Day


Click here for insightful stock market charts. Where is the market headed? The answer may surprise you. Find out
with the exclusive & Barron's recommended charts of Chart of the Day.


Popular Terms: quality assurance, minority interest, command economy, Zero Cost Collar, APR, annual return, Key Rate Duration, average price per share, ex-dividend date, phantom income, risk management, in escrow, EBITDA, diluted share, option premium, cancelled check, covered put, required rate of return, labor relations, VIX, balance sheet, current ratio, LIBOR, real GDP, 401a, debt service coverage, 1031 exchange, margin rate, 144a, liquidity ratio, class C shares, wholly-owned subsidiary, deferred tax, irrevocable trust, 1035 exchange, stock market close, deferred revenue, implied volatility, reverse mortgage, retained earnings, dividends payable, inflation, stock split, open position, limit order, ex-dividend, FICO score, FTSE, per diem


Accounting | Banking | Bonds | Brokers | Economy | Futures | Mutual Funds | Options | Real Estate | Retirement | Stocks | Taxes | Technical Analysis
Investor Glossary | Term of the Day | Suggest a Term | Chart of the Day | Dogs of the Dow
©2004-2016 Investor Glossary - All rights reserved - Terms of Use