Let’s look at the difference.

The American style allows the holder can exercise the option any time before the date of the expiry of the option contract.

European option, on the other hand, is exercised on the day of expiry.

Let us say that you bought an American-style call option. You will be able to exercise your right to buy the underlying shares any time before the date of expiry. In the same way, if you have purchased an American style put option, you can exercise your right to sell any time before the date of expiry.

If you have bought a European style call or put option, you can exercise your right to buy or sell the underlying shares only on the date of expiry.

Till January 2011, SEBI had allowed the exchanges in India to introduce and trade in European or American style options. Individual stocks were being traded in American style while index options were in American style option. After January 2011, NSE switched over to European style options for all contracts.

The type of option is identified by easy to understand codes mentioned against all the available options contracts. CA and PA for American and CE and PE for European style.

OPTION CODEs PREFIX

· Call European - CE

· Put European - PE

· Call American -CA

· Put American - PA

“Trading” and “Exercising” are two different things.

One can buy or sell a European option just like an ordinary share on the stock exchanges. The difference in options style is in the matter of exercising the right. We in India need not worry about the option style, because we have only one type, namely, the European. If one were to exercise the right, it must be on the last Thursday of the month.