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Finance: What's the Difference Between an American and European Style Option? 13 Views


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Description:

What is the difference between an American and European style option? The main difference between American and European options is when they can be exercised. American options can be exercised at any time after the option is purchased and before it expires; European options can only be exercised on the expiration date.

Language:
English Language

Transcript

00:00

Finance a la shmoop what's the difference between an American and a

00:06

European-style stock option okay if you clicked to [Man talking]

00:11

watch this video we're gonna assume you know what an option is if not well then

00:17

our video on it which won a Palme-d'Oy Vey-at con awaits alright well this [People chanting at Palme d'Oy Vey]

00:22

video is about one thing only a date not brought to you by tinder.. American

00:27

options can be converted anytime they are owned until they expire which in the

00:33

US usually happens on the third Friday of each month

00:36

aka expiration Friday that is the November 50 strike calls expire at the [Calendar flicks]

00:44

end of the trading day on the third Friday of this coming November it's just

00:48

easier having them all expire on the same day saves a lot of you know date

00:52

writing and yeah we thought the same thing thank goodness they don't sell [Green eggs on a shelf]

00:55

eggs that way ok so that's an American style option - A European style option is

01:01

different in one key way other than you know all the socialism and centuries of

01:06

espresso and wine and tea development behind it [People pouring tea, wine and espresso]

01:09

European options can only be converted and expire on one day so if that day

01:16

comes along in well North Korea decides to get all balmy or nuki and the market

01:22

goes down a lot well then you're out of luck at least if you had call options [Stock market dropping]

01:26

who were hoping to make money from because the market would go down right

01:28

well the fact that it's only one day when you can sell is in large part a

01:33

reflection of the very low tech manual labor systems in place when the whole [Person scribbling on piece of paper]

01:38

call option world was put into place in Britain like a hundred years ago the

01:42

American system was run largely by computers from a very early time in its [Person using computer]

01:47

history ie it was much later than when the Brits started and you can imagine

01:51

that if you leave open the potential for trading options at any time during a [Trade transferring between people]

01:56

given period well it leaves massively more data entry and data management

02:00

duties then if all the fireworks happen on one day so you really do need [Fireworks going off in the sky as window is open]

02:05

computers to manage all that stuff and it of course leaves the market open to a

02:09

whole lot more corruption manipulation and control from the

02:13

you know powers-that-be so do they sell options on being Queen,

02:17

King, Joker yeah when and how would they expire...[Man throws away King and Joker cards]

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