American Option

Just like all the freedoms we expect as being an American, an American option is a type of option in the stock market that can be bought or sold anytime during its life—up to and including the maturity date. The poor European option can only be exercised at maturity, making the American ones more valuable. (The names actually have nothing to do with their geographic location.)

Let’s say you purchased an American call option (predicting the price will go up) for Microsoft in April, which expires in November of the same year. Perhaps the share price goes up in September, making it the best time to exercise the option. If it had been a European option you would have had to wait until November, when the option might have been worthless.

Why would there be a restriction in the case of the European option? Well, there's a lot more fiat to manipulate stock prices in the European system. Like ..let's pretend the King still had bank (or the Queen) and he was short a bunch of call options coming due with a stock trading at $92 under a strike at $80. He'd be highly incentivized to get his crown-loving countrymen to dump the shares down to as close to $80 as he could to avoid being crushed by that bad trade. In the American system, it's way harder to...meddle and muddle.