Options on individual stocks can be exercised any time before the expiration date (American style option) or only on the expiration date (European style option).
These are basically the 2 exercise styles that determine when an option can be exercised.
American style option allow the option buyer to exercise the option at any time before the expiration date.
European style option can only be exercised on the expiration date. The only way to close this type of option before expiration is to make the opposing buy/sell transaction.
Most traded options are American style and all US equity options are American style. American style options are slightly more valuable than European due to the added flexibility to exercise.
In 1973, the Chicago Board of Trade, a large futures exchange, created the Chicago Board Options Exchange (CBOE). The CBOE is an organized options exchange that trades on highly standardized option contracts. It opened on 26 April 1973 to start trading on Calls. Put trading began its trading in 1977. Since 1973, other exchanges also begun to trade options.
The CBOE standardized all American option contracts to represent 100 share of a company. By standardizing the expiration date at regular interval as well, this makes option trading a much more appealing trading instrument.
There are different classes of underlying instrument that are trading options. The first is of course stock options – an option on a single share of common stock issued by a company. Although we are focusing on the discussion on stock options, there are other classes of options with very different underlying instrument that are worth mentioning.
Options are traded on financial indexes. These indexes can be indexes to measure the performance of a group of stocks, or precious metals, or any other good for which an index can be build as a measure of value.
Option can also be traded on foreign currencies, such as the Great Britain Pound, and trader buy and sell call and put options on the pound, as well as other currencies.
Another major type of underlying good is a futures contract. For an futures options, the underlying good is a position in a futures contract. This is also an important class of options trading as Futures contracts are written on a wide variety of goods, such as stock indexes, precious metals, agricultural products, foreign currency, petroleum product and debt instruments. Therefore futures options by themselves consists a great diversity of goods.
Below is a list of principal option exchanges in the United States, and it shows the kinds of options traded on each exchange. The exchanges may be classified into three groups depending upon whether the primary business of the exchange is the trading of options, stocks, or futures.
Chicago Board Options Exchange (CBOE)
Group 2: Primary business – Stocks
American Stock Exchange (AMEX)
Pacific Stock Exchange (PSE)
Philadelphia Stock Exchange (PHLX)
(These futures exchange trade options on futures exclusively, and they tend to trade options on the futures contracts in which they specialize.)
Chicago Mercantile Exchange (CME)
Chicago Board of Trade (CBOT)
Kansas City Board of Trade (KCBT)
Coffee, Sugar and Cocoa Exchange (CSCE)
Minneapolis Grain Exchange (MGEX)
MidAmerica Commodity Exchange (MIDAM)
New York Mercantile Exchange (NYME)
New York Cotton Exchange (NYCE)
New York Futures Exchange (NYFE)