When you’re trading options, it’s easy to assume all contracts function the same. But one key difference can change how and when you close a position: the exercise style.

There are two main types—American and European options. They don’t refer to where the options are traded, but rather when they can be exercised.

American-style options can be exercised any time before expiration. That means the buyer of the option can choose to use it at any point during the life of the contract. This gives more flexibility, especially in fast-moving markets. Most individual stock options (like AAPL, TSLA, etc.) traded on U.S. exchanges are American-style.

European-style options, on the other hand, can only be exercised at expiration. There’s no early exercise. These are more common with index options like SPX. The limited timing can actually work in your favor if you're an options seller, since there’s less surprise risk from an early assignment.

Why does this matter?

If you're trading strategies where exercise and assignment matter—like covered calls, credit spreads, or cash-secured puts—the style can affect your risk, your timing, and how you manage the position. Early assignment can catch new traders off guard, especially around dividend dates or near-the-money contracts.

Knowing the difference helps you plan your exit strategy better and avoid unnecessary surprises.

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