Advanced English Dialogue for Business – European style exercise

Listen to a Business English Dialogue About European style exercise

Avery: Hey Brandon, have you heard of European style exercise in finance?

Brandon: Hi Avery! Yes, European style exercise refers to an option contract that can only be exercised on its expiration date, unlike American style options which can be exercised at any time before expiration.

Avery: That’s right, Brandon. European style options provide less flexibility to the option holder but can sometimes be less expensive compared to American style options.

Brandon: Exactly, Avery. Because the option can only be exercised at expiration, there’s less risk for the issuer, which often leads to lower premiums for European style options.

Avery: Right, Brandon. European style options are commonly used in markets like the European options market, where they’re the standard type of option traded.

Brandon: Absolutely, Avery. They’re also prevalent in certain over-the-counter (OTC) markets and can be found in various asset classes such as stocks, bonds, and currencies.

Avery: Indeed, Brandon. European style options are often preferred when investors are looking to hedge specific risks or speculate on future price movements.

Brandon: That’s correct, Avery. And because they can’t be exercised early, European style options may be less complex to manage for both the option holder and the issuer.

Avery: Absolutely, Brandon. However, it’s important for investors to understand the limitations of European style options and consider their investment objectives and risk tolerance before trading them.

Brandon: Right, Avery. Overall, European style exercise offers a straightforward approach to options trading, providing investors with a way to gain exposure to the market while managing their risk effectively.

Avery: Indeed, Brandon. It’s an essential concept for anyone interested in derivatives and financial markets to grasp.