American Style Options
An American style of option means the option can be exercised at any time on or before the expiration date.
Most options fall into this category, which has nothing to do with where the option is written or the company
upon which it is written; it is only the name of the option's style.
For those seeking better trades, this version is considered to be the most valuable, since the options can be
sold at the most opportune moment for the most profit. If a trader bought a call option on XYZ stock, they
may sell the option at any time previous to the expiration date. If the stock goes up a month before
expiration, they are free to sell and capture profits. They may also hold the stock longer, hoping for bigger
gains and better trades, but run the risk of having the asset drop in value.
The American style of option is generally preferred by most people who are trading in the stock market. It
allows the trader to take advantage of the movements of a stock by using options as leverage. It isn't
uncommon for a trader to play the upside and downside of a stock during the same months. Sometimes this can
be done on numerous occasions.
American options stop being traded on the third Friday of the expiration month. They expire on Saturday, when
the average trader may no longer buy or sell. Traders who hold their options through expiration date will be
left holding a bag full of air; their options will be worthless. It's important to stay abreast of expiration
date and write it on the calendar. Failure to act could mean financial ruin for an investor who may be asleep
at the switch.
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