Exercise Types of Index Options
Options can be categorized based on their exercise style into two main types: American and European options. The European style is most commonly used for major stock index options, such as the S&P 500 and NASDAQ-100.
- European Style Options
European style options can only be exercised at expiration. They are suitable for long-term strategies and help in reducing complexities associated with early exercise. Most major stock index options, such as those on the S&P 500, Volatility Index, and NASDAQ-100, are European style.
- American Style Options
American style options can be exercised at any time up until the expiration date. They provide greater flexibility for traders who may want to exercise the option based on sudden market changes. However, these are less common for index options but may be seen in some sector-specific indices.
