When can a European style option be exercised?

When can a European style option be exercised?

• A. At any time until expiration
• B. Only on the expiration date
• C. During the week before expiration
• D. On the day after expiration

Answer: (B)

A European style option can only be exercised on the expiration date. This characteristic distinguishes European options from American options, which can be exercised at any time before or on the expiration date. The structure of European options often makes them more straightforward for pricing and risk management, as their exercise only occurs at a specified point in time. This can also influence investor strategy, as those holding European style options must wait until expiration to realize any potential profit from their positions. Understanding the distinct exercise mechanisms of different option styles is essential for effective trading and investment strategies in options markets.

A European style option can only be exercised on the expiration date. This characteristic distinguishes European options from American options, which can be exercised at any time before or on the expiration date. The structure of European options often makes them more straightforward for pricing and risk management, as their exercise only occurs at a specified point in time. This can also influence investor strategy, as those holding European style options must wait until expiration to realize any potential profit from their positions. Understanding the distinct exercise mechanisms of different option styles is essential for effective trading and investment strategies in options markets.