American vs. European Options
Equity options may be exercised at any time by the buyer of the option until the expiration date.
Non-equity options, which will be discussed later, may or may not have this feature. An option that can be exercised at any time prior to the expiration date is called an American-style option. An option that can only be exercised on the expiration date is called a European-style option. Both types of option may be traded on the secondary market at any time, but only the American-style option can be exercised at any time. Remember that equity options are always an American-style option.
When traded, all options settle T + 1. Interestingly, when exercised American-style options settle T + 3, whereas when European-style options are exercised, they settle in cash the same day. Options on individual U.S. stocks and ETFs are American-style. Options on the major indexes, such as the Dow Jones Industrial Average and the S&P 500 are typically European-style.
Remember this also. Only the option buyer has the right to exercise a contract. If a seller