Expiry, exercise and American vs European

Every option has an expiry date — the moment its life ends. What happens around expiry depends on the option's style.

American vs European style

The names are historical, not geographic:

• American-style options can be exercised any time up to and including expiry. Most single-stock options are American.
• European-style options can be exercised only at expiry. Most index options are European.

In practice, traders rarely exercise early — it is usually better to sell the option and capture its remaining extrinsic value than to exercise and throw that value away. Early exercise mainly matters around dividends.

What happens at expiry

• ITM options are typically auto-exercised by the clearing house (e.g. above a small threshold). An ITM call you hold becomes a purchase of 100 shares at the strike — make sure you have the cash, or close beforehand.
• OTM options simply expire worthless. The buyer loses the premium; the seller keeps it.

A practical warning

"Pin risk" and assignment surprises are real. If you sold an option, you can be assigned at any time (American style) and must deliver. Never hold a short option into expiry assuming it will quietly expire — a small move through the strike can turn it into a large obligation overnight. Manage or close positions before expiry day rather than gambling on the close.