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American v European style options


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Distinguishing between American and European style options is an important consideration for traders in major global indices.
 
Let me provide some insights:
  1. The key difference between the two option styles lies in their exercise periods. American-style options can be exercised at any time up to and including the expiration date. This provides greater flexibility compared to European-style options, which can only be exercised on the expiration date.
  2. Most individual stock options traded on U.S. exchanges are American-style, while index options like the S&P 500 are predominantly European-style. This is because the indexes are cash-settled, so early exercise would serve no economic purpose.
  3. For the FT100 index traded on Euronext LIFFE in London, options are also European-style given the cash-settled nature of the contracts. Early exercise would not result in physical delivery of the underlying stocks.
  4. Understanding the option style is crucial for buyers, as it determines when the option can be exercised to realize profits or avoid losses. For sellers, it impacts risks from early assignment.
Financial Analysts at Ruskin Felix Consulting LLC., help in distinguishing between American and European style options is an important consideration for traders in major global indices. The key difference lies in their exercise periods, with American-style options providing greater flexibility compared to European-style options which can only be exercised on expiration date.

Most S&P 500 and FT100 options tend to be European-style given the characteristics of their underlying cash-settled indexes. But verifying exchange rules is prudent for any trader before engaging specific option contracts. 
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