Types of options

There are 2 main types of options on the market.

American options can be exercised at any time between the date of purchase and the expiration date. Most exchange-traded options are of this type. This flexibility affects their price: they are usually worth more than European options.

European options are different from American options in that they can only be exercised at the end of their life and not before. At the Montréal Exchange, the S&P 60 Canada Index option (SXO) is European style.

Note: The distinction between American and European options has nothing to do with geographic location.

Short- or long-term?

Options with less than 9 months to expiry are considered short-term.

Long-term options can have holding times of up to 3 years. They're also called LEAPS (Long-term Equity AnticiPation Securities). Although they're not available on all stocks, LEAPS are available on most widely-held issues.

Simple or exotic?

Simple options are sometimes referred to as "plain vanilla" options.

Exotic options are non-standard options, which either are variations on the payoff profiles of the plain vanilla options or are wholly different products with "optionality" embedded in them. They're complex financial products.

Useful link

TMX - Montréal Exchange: see the Options FAQ.

Tools and tips

Why use options?

Options are versatile securities that allow you to profit when a stock price falls (put options) or when it goes up (call options).

Read tip - Why use options?

How options work

A fictional example to illustrate how options work.

Read tip - How options work

How to read an options table

What the columns in an options table stand for.

Read tip - How to read an options table