European option(redirected from European Options)
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An option contract that may only be exercised on the expiration date. For example, if one buy a European call giving him/her the right to buy shares in X expiring on the final Friday in March, the call may only be exercised on the final Friday in March. The implication of a European option is the fact that its value is entirely dependent on the value of the underlying asset at the end of the contract. A holder may not wait for an advantageous price and exercise the option. This contrasts with an American option, which may be exercised at any time prior to expiry.
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An option that can be exercised only on its expiration date, in contrast to the option available in the United States whereby the owner may exercise any time up to and including the expiration date.
Wall Street Words: An A to Z Guide to Investment Terms for Today's Investor by David L. Scott. Copyright © 2003 by Houghton Mifflin Company. Published by Houghton Mifflin Company. All rights reserved. All rights reserved.