All About Finance

October 23, 2020 3:42 am

An American option. What it is

An American option is a put option or call option that can be exercised at any time on or before its expiration date.
Since the option price moves in sync with the underlying asset, the value of the option may rise and fall multiple times over the life of the contract. Most of the options that trade on major exchanges are American options.
With an American option, the holder can wait for the most advantageous price to exercise the option. He can exercise the option on any of the trading days up to the expiration date. Due to greater flexibility, American options are more valuable than European-style options, which can only be exercised at the expiration date of the option.
Thus, those traders who use American options have a great opportunity to make a profit.

Trading with American options

An American option does not mean that it can only be bought in the US. This contract was given such a name only because of its origin.What are the benefits of American options? The American option is the most demanded contract. This is due to the fact that it is impossible to predict by 100% how the rate of the security will behave. At any time, the value of shares and other securities can begin to decline sharply, then the owner of the American options has the opportunity to immediately react and take any active action. Thus, the American options gives some certainty to its owner, heals it against unexpected or force majeure situations.
Thus, if you want to be sure you have a convenient and really good instrument for trading – choose American options. It will help you to raise your money and stay calm.