Since investors have the freedom to exercise their American options at any point during the life of the contract, they are more valuable than European options which can only be exercised at maturity.
Consider this example: If you bought a Ford March Call option expiring in March of 2006 in March 2005, you would have the right to exercise the call option at anytime up until its expiration date. Had the Ford option been a European option, you could only exercise the option at the expiry date in March '06. During the year, the share price could have been most optimal for exercise in December of 2005, but you would have to wait to exercise your option until March 2006, where it could be out-of-the-money and virtually worthless.
Note that the name of this option style has nothing to do with the geographic location.
Investment dictionary. Academic. 2012.
Look at other dictionaries:
American option — An option that may be exercised at any time up to and including the expiration date. Related: European option American option or American style option An option that the holder can exercise any time prior to and including the expiration date. See … Financial and business terms
American option — Fin an option contract that can be exercised at any time up to and including the expiration date. Most exchangetraded options are of this style. See also European option. Also known as American style option … The ultimate business dictionary
American option — An option that can be exercised on any business day prior to its expiry date. Compare: European option … Accounting dictionary
American option — /əˌmɛrɪkən ˈɒpʃən/ (say uh.merikuhn opshuhn) noun Stock Exchange an option that can be exercised at or before its maturity date. Compare European option … Australian English dictionary
American option — noun an option that can be exercised at any date between the issue date and the expiry date … Wiktionary
American option — See option … Big dictionary of business and management
American option — right to buy or sell an asset at a set price at any time until the expiration date (Economics) … English contemporary dictionary
modified American option — See Bermuda option. American Banker Glossary … Financial and business terms
Option style — In finance, the style or family of an option is a general term denoting the class into which the option falls, usually defined by the dates on which the option may be exercised. The vast majority of options are either European or American (style) … Wikipedia
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