What is an American Option in stock market?

American Options are basically derivatives which have the option of being redeemed anytime during the life of the option. The main use of being able to redeem the option before it reaches maturity or on the date of maturity is that it gives an additional advantage of tradability. It is in contrast to European options which can only be exercised at its maturity.  Also, it is only because of this feature that stock exchanges witness the widest trading in these.  Thus, it is highly liquid and preferred. The name of the option is not related to any country or geographical location.

 

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