European option
Principles of Finance glossary · Principles Of Finance
Definition
An option that may be exercised only at expiration.
European option in plain English
An option is a contract giving you the right to buy or sell something at a set price — a 'European' option just adds one rule about TIMING: you can only use it on one specific day, the expiration date, not a moment sooner. Think of a concert ticket that's valid only on the night of the show — no early entry, no coming back later. This is the opposite of an 'American' option, which you can cash in any day up to expiration. The single-day rule actually makes European options simpler to price mathematically, which is why classic finance formulas were built around them.
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