Legal Definitions - European-style option

An European-style option is a type of financial contract that gives the holder the right, but not the obligation, to buy or sell an underlying asset at a fixed price on a specific date. Unlike American-style options, European-style options can only be exercised on the expiration date.

For example, let's say an investor holds a European-style call option on a stock with a strike price of $50 and an expiration date of December 31st. If the stock price rises above $50 before December 31st, the investor can exercise the option and buy the stock at the lower strike price. However, if the stock price does not rise above $50 before December 31st, the option will expire worthless.

Another example of a European-style option is a currency option. If a company holds a European-style currency option to buy euros at a fixed exchange rate on a specific date, they can only exercise the option on that specific date.

Overall, European-style options provide investors with flexibility and risk management strategies, but they also come with limitations due to their fixed expiration date.