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European Style Option

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European Style Option

A European style option is an option in which the purchasers of options contracts can only execute the contract on the expiration date, not before. In this regard a European style option contrasts with an American style option, which can be executed at any point in time before expiration. A European style option, just like an American style option, can be used for options trading in stocks, commodities, Forex or futures. For traders in options there is still plenty of profit potential in trading a European style option. In buying puts and buying calls the trader will not be able to execute a contract and buy stock or sell stock until the end of the contract period. However, he will be able to exit his position with a profit when the stock price, commodity price, or futures price he is following with Candlestick analysis performs as anticipated. In order to exit a position in a European style option the trader simply executes the opposite trade on the same equity with the same expiration date. If he was buying calls then he sells calls. If he was buying puts, then he sells puts and he is out of the contract.

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European Style Option

  1. 1. European Style OptionBywww.CandlestickForums.com
  2. 2. A European style option is an option inwhich the purchasers of optionscontracts can only execute the contracton the expiration date, not before.www.CandlestickForums.com
  3. 3. In this regard a European style optioncontrasts with an American styleoption, which can be executed at anypoint in time before expiration.www.CandlestickForums.com
  4. 4. A European style option, just like anAmerican style option, can be used foroptions trading instocks, commodities, Forex or futures.www.CandlestickForums.com
  5. 5. For traders in options there is still plentyof profit potential in trading a Europeanstyle option.www.CandlestickForums.com
  6. 6. In buying puts and buying calls thetrader will not be able to execute acontract and buy stock or sell stock untilthe end of the contract period.www.CandlestickForums.com
  7. 7. However, he will be able to exit hisposition with a profit when the stockprice, commodity price, or futures pricehe is following with Candlestick analysisperforms as anticipated.www.CandlestickForums.com
  8. 8. In order to exit a position in a Europeanstyle option the trader simply executesthe opposite trade on the same equitywith the same expiration date.www.CandlestickForums.com
  9. 9. If he was buying calls then he sells calls.If he was buying puts, then he sells putsand he is out of the contract.www.CandlestickForums.com
  10. 10. In the USA European style options areseen on the over the counter marketwhile American style options aretypically seen in standard optionstrading exchanges.www.CandlestickForums.com
  11. 11. Because of the increased flexibility thatan American style option offers this stylewill often trade at a premium whencompared to the less flexible Europeanstyle option.www.CandlestickForums.com
  12. 12. Nevertheless, unless an investor islooking to pick up a stock for long terminvestment at a low price there is littlewww.CandlestickForums.com
  13. 13. difference between the two types asboth types of contracts can be exitedwww.CandlestickForums.com
  14. 14. when the trader simply wants to take hisprofit and not buy or sell the underlyingstock, commodity, or future in question.www.CandlestickForums.com
  15. 15. In trading options of either style thetrader will be wise to investigate thebasics of the equity in question.www.CandlestickForums.com
  16. 16. This is fundamental analysis and it willgive the trader a broad view of thepotential of the underlying equity inquestion.www.CandlestickForums.com
  17. 17. To guide the daily buying and selling ofoptions the trader will use technicalanalysis with Candlestick chartformations.www.CandlestickForums.com
  18. 18. Thereby he will better understandmarket sentiment and be able towww.CandlestickForums.com
  19. 19. anticipate market trends and marketreversal in so far as these market factorswill affect the equity underlying theoption in question.www.CandlestickForums.com
  20. 20. Trading a European style option versusand American style option does little tochange the leverage and investment riskaspects of options trading.www.CandlestickForums.com
  21. 21. Because in each case the trader caninvest only the price of the optionspremium his capital outlay is the same.www.CandlestickForums.com
  22. 22. Because in each case the trader can exitthe position with a profit and not buythe equity his degree of leverage is thesame.www.CandlestickForums.com
  23. 23. Because in each case the trader is neverobligated to buy the underlying equityunless the price performs as expectedinvestment risk is minimal.www.CandlestickForums.com
  24. 24. In the end the most important aspect oftrading a European style option is thetypically the same as for an Americanstyle option.www.CandlestickForums.com
  25. 25. It is to follow the price of the underlyingequity with technical analysis tools suchwww.CandlestickForums.com
  26. 26. as Candlestick patterns in order toaccurately anticipate price changes andto trade accordingly.www.CandlestickForums.com

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