Exercise Type
The option style, as specified in the contract, determines when, how, and under what circumstances, the option holder may exercise it. It is at the discretion of the owner whether (and in some circumstances when) to exercise it.
- European - European-style option contracts may only be exercised at the option's expiration date. Thus they can never be worth more than an American-style option with the same underlying, strike price and expiration date.
- American - American-style option contracts can be exercised at any time up to the option's expiration. Under certain circumstances (see below) early exercise may be advantageous to the option holder.
- Bermudan - Bermudan-style options contracts may only be exercised on specified dates. Bermudan-style options are common in the interest rate options and swaps markets.
Read more about this topic: Exercise (options)
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