• A European option is a variant of an option contract that limits the exercise of rights to only the day of expiration.

  • While US options can be exercised early, this comes at a cost, as their premiums are often higher than European options.
  • Investors can sell the European option contract back to the market before it expires and receive the net difference between the premiums earned and the premiums originally paid.
  • Investors usually don’t have a choice between buying US or European options, and most indices use European options.
  • The Black-Scholes option model is often used to value European options.