Glossary
American-style option
An option that can be exercised on any business day up to expiration; most US single-stock options are American style.
On this page
An American-style option is an option contract that the holder may exercise at any time before it expires, not just on the expiration date. The label refers to the exercise rule, not to where the option trades. Options on individual US stocks and on most US-listed ETFs are American style, which is why sellers of those contracts can be assigned before expiration.
How it works
The holder of an American call can demand the shares at the strike price on any business day of the contract's life; the holder of an American put can sell shares at the strike on any such day. The counterpart is the European-style option, which can be exercised only at expiration. Broad index options such as SPX are European style and cash settled.
In practice, early exercise of a call is usually not worth it, because exercising throws away the option's remaining time value. The main exception comes just before an ex-dividend date.
Deep in-the-money puts can also be worth exercising early, especially when interest rates are high, because receiving the strike price sooner earns interest.
Why the style matters
Because the holder has an extra right, an American option is worth at least as much as an otherwise identical European one. For option sellers, the style determines assignment risk: short American options can be assigned at any time, which matters for covered calls, spreads and positions held into dividends.