Discussion in 'Options' started by North Pesos, Apr 3, 2003.
How to detect quickly that an option is European or American style?
One possible way is to check the put/call parity.
For European option
Call - Put = Stock - Strike * exp(- r * t )
while for American
Stock - Strike < Call - Put < Stock - Strike * exp(- r * t )
These are in theory. For practical purpose, you may find you are in a grey area, especially options with wide bid/ask spread.
It would probably best to verify this and other characteristics & specifications on the website of the exchange where the options are listed.
Most listed equity options are American style, expire on the third friday after the close and have physical settlement, whereas index options are European style, expire on the third friday either on the opening print (U.S. exchanges), or sometime during the day (e.g. 1 p.m. on Eurex), and get settled in cash.
I wouldn't suggest doing it the put-call parity way. What values would you go off, to begin with.
Most stock equity options are American. However, if you are going to trade ANYTHING - go to the exchange web site and take a look at the contract specs. I bet if you spend a couple hundred bucks on say a camera, you'll shop around, compare specs etc. Trading is no different. With the availability of information via the internet, there is no excuse not to check.
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