Definition of American option:
An American style option allows investors to capture profit as soon as the stock price moves favorably. The names American and European have nothing to do with the geographic location but only apply to the style of rights execution.
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. Another version or style of option execution is the European option that allows execution only on the day of expiration.
Type of option that may be exercised at any time before, and up to, its expiration date. European option, in comparison, can be exercised only on its expiration date. The payoff of an American option (like that of a European option) depends on the average price of the underlying asset as on a specific date and (unlike that of an Asian option) not over a period. These option names, however, refer only to the types of options and not to any geographical area. Also called American-style option.
How to use American option in a sentence?
- An American style option allows investors to capture profit as soon as the stock price moves favorably.
- An American option is a style of options contract that allows holders to exercise their rights at any time before and including the expiration date.
- American options are often exercised before an ex-dividend date allowing investors to own shares and get the next dividend payment.
Meaning of American option & American option Definition