An American option is an option contract that gives the holder the right, but not the obligation, to exercise the option on or before a fixed date. This is in contrast to a European option, which can only be exercised on the expiry date. The holder of an American option has the flexibility to choose when to exercise the option, which can be advantageous in certain situations.

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An American Option

Question 72

Multiple Choice

An American option:

A) is the right, but not obligation, to buy the underlying asset
B) is the right, but not obligation, to sell the underlying asset
C) is the right, but not obligation, to exercise the option on or before a fixed date
D) is the right, but not obligation, to exercise the option on the expiry date only
E) is a type of option that is traded in the US only.

Correct Answer: