European Call and Put Options Definition The investing term European option refers to contracts that give the investor the right to buy, or sell, an asset at a specific price on a certain date.
A European call option provides the investor with the right to purchase an asset, while a put option provides the investor with a right to sell it. Premium: the price paid when an option is purchased or liquidity on options. Strike Price: identifies the price at which the holder of the contract has a right to sell put option or buy call option the underlying asset.
Maturity Date: also referred to as the expiry date; the option no longer has any value if not exercised on this date.
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As is the case with American Options, European-style options also come in two basic forms: Call Options: also referred to as calls, this contract gives the holder the right to purchase the asset at the strike price on the maturity date. Put Option: also referred to as puts, this contract gives the holder the right to sell the asset at the strike price on the maturity date.
All options provide their holders with certain rights, which are not obligations. For example, a call option gives the holder the right to purchase the buying options euro at the strike price. The holder is not required to complete this transaction.
American versus European Options While there are many fundamental similarities between American and European options, there are several important differences as shown in the table below:.