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American-style option

An option that can be exercised any time up to expiration — the standard for single-stock and ETF options.

An American-style option can be exercised on any trading day up to and including expiration, not only at expiration. Most single-stock options in the US work this way, while broad index options usually do not. In practice this flexibility matters most to the person who is short the option, because they can be assigned early and forced to deliver or buy shares before they expected to.

The classic trigger is a dividend. Imagine you sold a covered call and the stock is deep in the money the day before it goes ex-dividend. The call holder may exercise early to capture that dividend, and your shares get called away sooner than planned. Puts can be exercised early too, typically when they are deep in the money and interest on the freed-up cash outweighs the remaining time value.

The common mistake is treating early assignment as unlikely and ignoring the dividend calendar. If you run short options, check ex-dividend dates and watch for calls whose remaining time value has shrunk close to zero, since that is exactly when holders decide exercising now beats waiting.

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