American vs European style

Two exercise rules: anytime vs only-at-expiry

Every option follows one of two exercise styles. American-style options can be exercised any day from when you open the trade through expiry. European-style options can only be exercised on the expiration date itself. Despite the names, this has nothing to do with geography — it's just labels for the rule.

Which products use which style? In the US: most single-stock options (AAPL, TSLA, NVDA, all of them) are American-style. Most major index options (SPX on the S&P 500, NDX on the Nasdaq-100, VIX on volatility) are European-style. ETF options like SPY (the S&P 500 ETF) are American-style, even though the underlying tracks an index. The split is roughly: stocks and stock-tracking ETFs = American, pure index products = European.

Another big difference: settlement. American-style stock options settle by physical delivery — you actually get or give 100 shares. European-style index options settle in cash — there's no underlying basket of stocks being delivered. If your SPX call finishes 10 points ITM, you get $1,000 cash per contract ($10 x 100 multiplier), not a basket of S&P 500 stocks. Cash settlement is one reason traders prefer index options for clean expirations.

Practical takeaway: when you trade AAPL options, you might get assigned early if you sold a deep-ITM call before a dividend. When you trade SPX options, you can never be assigned early — only at expiry, and even then it's cash. The mechanics matter when you're sizing positions and managing risk. American = flexibility for the buyer, surprise risk for the seller. European = cleaner timeline for both sides.

Recap: American-style = exercise any day, physical delivery, US single-stock norm. European-style = exercise only at expiry, cash settlement, US index norm (SPX, NDX, VIX). The label is about timing rules, not geography.