American Option
An option that may be exercised at any time up to and including its expiry date.
How it is identified
Test: the holder may exercise on any trading day up to expiry, and the writer may be assigned at any time
Unit
qualitative
In depth
Early exercise rights make an American option worth at least as much as an otherwise identical European one, though the extra value is usually small because exercising forfeits time value. The rights matter mainly around dividends, where exercising a call just before an ex-date can capture a payment that would otherwise be lost. In India single-stock options are American style, which means writers face assignment risk on any day, not only at expiry. That risk combines with physical settlement to make single-stock option writing operationally demanding.
Worked example
A writer of an American call is assigned three days before expiry, ahead of an ex-dividend date. The obligation to deliver 1,000 shares at ₹500 arrives immediately, requiring the shares or a ₹5,00,000 purchase.
Illustrative figures, chosen so the arithmetic is easy to follow. Not a live price and not a valuation of any company.
Educational reference only
This entry explains what “American Option” means. It is not investment advice and not a recommendation to buy or sell any security. Any numbers above are illustrative, not live prices, and nothing here predicts price direction or rates a stock. Consider your own circumstances and consult a SEBI-registered investment adviser before acting.