What Is the Primary Difference between a European Option and an American Option?

The primary difference lies in when the option holder is permitted to exercise their right. A European option can only be exercised on its expiration date.

Conversely, an American option grants the holder the right to exercise at any time between the purchase date and the expiration date. This flexibility makes American options generally more valuable than European options, all else being equal.

Most index options are European-style, while most equity options are American-style.