When dealing in options there are two styles, European and US.
Confusingly the terms have nothing to do with the different continents or shares and financial products listed on the two continents.
- European style options can only be exercised on the day of the option expiry
For example if you owned the IBM June $65 call with the shares at $75, you can't exercise this option and receive the shares until the expiry day.
Of course the option can still be freely traded in the market place enabling a profit or loss to be taken.
- US style options can be exercised at any time on or before expiry
If you owned the BT Dec £1.50 call when the shares are trading at £1.75 you could exercise the option and take delivery of 1,000 shares at any time before the December expiry date.
All options on UK equities are US style and are therefore more flexible.
Although they trade both the US and European style options on the FTSE 100 index, most if not all of the business is done European style.
Personally I wouldn't worry too much which style of options to use because for most retail clients it is immaterial.
But if you have the choice it's simple to work out which style to use - always trade where the majority of trading is being done.
For example, if you want to trade options on the FTSE 100 index, both US and European style are offered.
Look at the daily volumes and you'll see the vast majority are traded European style - that is therefore where you should trade.
This is because the busier a market the tighter the bid offer spreads.
You might find for example the spread on a FTSE (Euro style) option is 91-92 whereas the same spread for the US style option is 89-94.
Never forget that the cost of doing business in the financial markets is so important to overall profitability. The more you pay in costs the less overall profit or more overall loss you will make.
Some traders think of costs as a tax.
And it's hard to find people who want to pay a higher tax percentage of their income!