American Option

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Definition: American Option


American Option

Quick Summary of American Option


This is an option that can be exercised on any business day prior to it’s expiry date.




What is the dictionary definition of American Option?

Dictionary Definition


An American option is a version of an options contract that allows holders to exercise the option rights at any time before and including the day of expiration.


Full Definition of American Option


An option that can be exercised at any time between the purchase date and the expiration date. Most options in the U.S. are of this type. This is the opposite of a European-style option, which can only be exercised on the date of expiration. Since an American option provides an investor with a greater degree of flexibility than a European style option, the premium for an American style option is at least equal to or higher than the premium for a European-style option which otherwise has all the same features.

The majority of options that are trade on most stock exchanges are American options.

With an American option, the holder can wait for the most advantageous price to exercise the option. He can exercise the option on any of the trading days up to the expiration date. Due to greater flexibility, American options are more valuable than European-style options, which can only be exercised at maturity.


Synonyms For American Option


American-style option


Related Phrases


Bermuda option
European exercise
European option


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, from PayrollHeaven.com website: https://payrollheaven.com/define/american-option/

Definition Sources


Definitions for American Option are sourced/syndicated and enhanced from:

  • A Dictionary of Economics (Oxford Quick Reference)
  • Oxford Dictionary Of Accounting
  • Oxford Dictionary Of Business & Management

This glossary post was last updated: 1st November, 2021 | 0 Views.