Hi everyone, If you bought a call or put option. When can you exercise it? I've read you have american and european style of options, what's the difference between them and how can you know which type of option you have? If you want to exercise your option do you need volume or something in the market? Or if your option is in the money you can ALWAYS exercise it and buy the shares? TIA
American options (note that this has nothing to do with geography) can be exercised at any time throughout the option's life. European options can only be exercised at expiration. Generally (in the US market), equity options are American-style, while index options, with some exceptions, are European-style. For options on futures and other products you can check contract specification on the respective exchange. You can exercise an American-style option at any time, you do not need volume or anything else. In fact, you can even exercise an OTM option, but, obviously, this is not something that you would want to do.
American vs European style options; https://en.wikipedia.org/wiki/Option_style http://www.investopedia.com/articles/optioninvestor/08/american-european-options.asp http://www.dummies.com/personal-fin...omparing-american-and-european-style-options/ http://www.nasdaq.com/investing/options-guide/option-styles.aspx I suggest that you enhance your options knowldgebase by building your trading library. -Option Pricing & Volatility (2nd Edition)..Sheldon Natenberg -Options as a Strategic Investment (5th Edition)..Lawrence G. McMillan -The Complete Guide to Option Selling: How Selling Options Can Lead to Stellar Returns in Bull and Bear Markets (3rd Edition).. James Cordier and Michael Gross - Options, Futures, and Other Derivatives (9th Edition)..John C. Hull - Getting Started in Options (8th Edition).. Michael C. Thomsett - Option Spread Trading: A Comprehensive Guide to Strategies and Tactics..Russell Rhoads - Trading Weekly Options ..Russell Rhoads In addition I would visit, at a minimum, the following websites to help further your education; The Options Industry Council http://www.optionseducation.org/en.html The Options Clearing Corporation http://www.optionsclearing.com/ Chicago Board Options Exchange (CBOE) Education Center http://www.cboe.com/learncenter/ Chicago Mercantile Exchange Education Center http://www.cmegroup.com/education.html NASDAQ http://www.nasdaq.com/ Financial Industry Regulatory Authority http://www.finra.org/ National Futures Association http://www.nfa.futures.org/ Wikipedia https://en.wikipedia.org/wiki/Option_(finance) There's also a number of magazines available on the newsstands (e.g. Barnes and Noble, Books A Million, etc.) that feature articles and columns about options and how to analyze/trade them. They include; Modern Trader (was, until 2015, Futures and still is on the Web) http://www.futuresmag.com/ Technical Analysis of Stocks and Commodites http://www.traders.com ThinkMoney (online and mostly options oriented) https://tickertape.tdameritrade.com/thinkmoney
Look up contract specs on the respective exchange - e.g. http://www.cboe.com/products/equityoptionspecs.aspx and http://www.cboe.com/products/ If we are talking about US equity options then they are American-style.
I second the advice that you take the time to read up on what drives options values and get a firm understanding of volatility and options pricing based on volatility. Options are two layers deep, and the second layer isn't at intuitive unless you're already an prob/stats geek. For example, to your question, it is almost never optimal to exercise an American style option early (and you can't exercise a European option), generally the only time it's optimal is if there is a dividend that goes ex shortly before expiration. Until you fully grasp that, and why, you're just randomly throwing money at the market.