Published On: Wed, Feb 6th, 2013

European Option

A European Option is a derivative contract that gives the owner the right but not the obligation to either sell or buy a security linked to the derivative at a specific time in the future and no sooner.

European options include one buyer and one seller for each option contract that is listed on an exchange.  Whereas one of the contract holder has the right to either buy or sell the underlying security, the holder of the other end of the same options contract will have the obligation to either buy or sell the security if the other end demands them to do so.  This demand to redeem the options contract to its equivalent in underlying shares is called exercising, and the price at which European Options contract exercisers is called its strike price.

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About the Author

- Marcus Holland has been trading the financial markets since 2007 with a particular focus on soft commodities. He graduated in 2004 from the University of Plymouth with a BA (Hons) in Business and Finance.