European vs American Options: Exercise Style Explained
European-style options can be exercised only at expiry, American-style at any time before it. Which style crypto and US stock options use, and why it matters.
This article is for educational purposes only and is not financial, investment, legal or tax advice. Writing options involves significant risk and is not suitable for everyone. Overcast operates an options protocol and has a commercial interest in the topics discussed.
European-style options can be exercised only at expiry. American-style options can be exercised at any time up to expiry. The names describe the exercise rule, not where the option trades.
| European style | American style | |
|---|---|---|
| When the buyer can exercise | Only at expiry | Any time until expiry |
| Early assignment for the seller | Not possible | Possible, most often around dividends |
| Typical use | Most crypto options, index options | Listed US stock and ETF options |
Which style do crypto options use?
Most crypto options are European style. Deribit states that all its options are European style and cash settled. Bybit's USDC-settled options follow the European style as well, as reported at launch. Onchain, Rysk's documentation describes its options as European style and physically settled.
Listed US equity options are the main exception: the Options Clearing Corporation's primer describes them as American style, exercisable at any time before expiration.
Why it matters if you sell options
With a European-style option you know when assignment can happen: at expiry. Collateral and settlement are predictable until then. With an American-style option the buyer can exercise early, which is a real consideration for covered calls on dividend-paying stocks.
On Overcast, each option's terms define the window in which the buyer may exercise. Check that window in the quote before you accept it. See How Overcast works.
FAQ
Are crypto options European or American style?
Mostly European style, exercisable only at expiry. Deribit and Bybit both list European-style options. Always confirm the exercise rule of the specific platform and contract.
Can a European-style option be closed before expiry?
It cannot be exercised early, but on a platform with a market the position can be closed by trading it: the buyer sells the option, or the seller buys it back.
Sources
- What is an options contract?, Deribit Insights
- Bybit launches crypto options settled in USDC, FinanceFeeds, 27 June 2022
- How it works, Rysk documentation
- Primer: Equity (stock and ETF) Options, The Options Clearing Corporation
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Risk disclosure and disclaimer
The content on this blog is published by Overcast for general information and education only. It does not constitute financial, investment, legal, tax or accounting advice, and it is not an offer, solicitation or recommendation to buy, sell or hold any asset or to use any product or strategy. It does not take into account your objectives, financial situation or needs. Consult a qualified professional before making any investment decision.
Writing options involves substantial risk. A covered call limits your upside and leaves you fully exposed to declines in the underlying asset. A cash-secured put can oblige you to buy an asset at a price above its market value at expiry. Premiums, yields and APRs shown are illustrative or historical, are not guaranteed and do not predict future results. Crypto assets and tokenized securities are highly volatile and may lose some or all of their value. Smart contracts may contain vulnerabilities, and onchain transactions are irreversible.
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