Glossary
European-style option
An option that can be exercised only at expiration; most index options such as SPX are European style.
On this page
A European-style option can be exercised only at its expiration, not on any day before. The label describes the exercise rule, not where the contract trades: plenty of European-style options are listed in Chicago. In the US, most options on individual stocks and ETFs are American style, while many options on broad indexes, including standard S&P 500 index options (SPX), are European style. The difference shapes early-assignment risk and, in some cases, the option's price.
How it works
The holder of a European call or put cannot exercise early, so the seller cannot be assigned early. Before expiration, both sides can still close the position by trading it in the market at any time; the restriction applies only to exercise.
According to Cboe, standard monthly SPX options are AM-settled (from opening prices on expiration day), while SPXW weeklies and end-of-month series are PM-settled.
Why the distinction matters
- No surprise assignment. A short European option cannot be assigned before expiry, for example the night before an ex-dividend date. That makes spreads easier to manage.
- Pricing. An American option is worth at least as much as an otherwise identical European one, because the early-exercise right has some value. For calls on non-dividend-paying stocks the right is usually worthless, so the prices are close.
- Settlement risk. AM settlement means the final value is set at the next morning's open, which can differ from the prior close.