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European-style option

An option that can only be exercised at expiration, which removes early assignment risk for the seller.

The holder of a European contract has no right to exercise early, no matter how deep in-the-money it goes. This is the standard for broad-based index-options and for most cash-settled products.

For a seller, that single feature deletes a whole category of risk: no early-assignment the day before an ex-dividend date, no surprise share position, no need to monitor extrinsic-value on the short leg overnight.

Example: you are short a European index call struck at 5,000 with the index at 5,200 and three weeks left. You are down on the position, but nothing can be assigned to you today. The same situation in an American-style etf-option could deliver 100 short shares before the open.

Related: american-style-option, bermudan-option, early-assignment, index-option

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