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Option syles - European option style and American option style.

Settlement of options is based on the expiry date. However, there are three basic styles of options you will encounter which affect settlement. The styles have geographical names, which have nothing to do with the location where a contract is agreed. The styles are:

European: These options give the holder the right, but not the obligation, to buy or sell the underlying instrument only on the expiry date. This means that the option cannot be exercised early. Settlement is based on a particular strike price at expiration. Currently, in India only index options are European in nature.
eg: Ram purchases 1 NIFTY JAN 3010 Call - Premium 20. The exchange will settle the contract on the last Thursday of January. Since there are no shares for the underlying, the contract is cash settled.
American: These options give the holder the right, but not the obligation, to buy or sell the underlying instrument on or before the expiry date. This means that the option can be exercised early. Settlement is based on a particular strike price at expiration. Options in stocks in the Indian market are American Options.
eg: Ram purchases 1 ACC JAN 945 Call - Premium 12. Here Ram can close the contract any time from the current date till the expiration date, which is the last Thursday of January.
American style options tend to be more expensive than European style because they offer greater flexibility  to the buyer.

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