American vs European Options: Exercise Style, SPX vs SPY, and Cash vs Physical Settlement

An American-style option can be exercised on any business day up to and including its expiration date, while a European-style option can be exercised only at expiration. The names have nothing to do with geography: almost all US and Canadian stock and ETF options are American style, while most broad index options, including the S&P 500 index options (SPX) on Cboe, are European style.

In short: exercise style decides when an option can be exercised; settlement type decides what changes hands. Stock and ETF options (such as SPY) are usually American style and physically settled: exercise delivers 100 shares. Broad index options (such as SPX, XSP, and Canada’s S&P/TSX 60 options, SXO) are usually European style and cash settled: at expiration, the in-the-money amount is paid in cash, times the $100 multiplier. European options can’t be assigned early, which removes one risk for writers.

The misconception: American options are traded in America

“American” and “European” are just labels for two contract designs. A European-style option trades on Cboe in Chicago; an American-style option on a Canadian bank trades on the Montréal Exchange. What differs is the exercise right, and that difference flows through to pricing, assignment risk, and how positions end.

The two exercise styles

	American style	European style
When the holder can exercise	Any business day up to and including expiration	Only at expiration
Can the writer be assigned early?	Yes	No
Typical products	Stock and ETF options (US and Canada), a few index options such as OEX	Most broad index options: SPX, XSP, NDX, RUT; SXO in Canada
Usual settlement	Physical (shares) for stocks and ETFs	Cash for index options

Both styles can be bought and sold any time the market is open. European style only limits exercise. A holder of a European option who wants out before expiration simply sells it.

Is the early exercise right worth anything?

Sometimes. Because an American option includes every right a European option has plus one more, it is worth at least as much as an otherwise identical European option. The extra right matters mainly in two cases, both covered in how exercise and assignment work: calls just before a dividend that is larger than the call’s remaining time value, and deep in-the-money puts when interest rates make cash today worth more. For calls on stocks that pay no dividends, early exercise is generally not worth it, so American and European versions are worth about the same.

Physical vs cash settlement

Physical settlement means exercise results in actual delivery of the underlying. A long call exercised on a stock option becomes 100 shares in your account and a debit for the strike times 100.

Cash settlement means no shares change hands. The holder of an in-the-money option receives:

(settlement value minus strike) x multiplier, for a call (strike minus settlement value) x multiplier, for a put

Index options are cash settled because you can’t deliver an index. Settlement cash is paid on the business day after expiration.

A cash-settled worked example

Suppose (hypothetically) an S&P 500 index option has a strike of 6,000, and the index’s settlement value at expiration is 6,045.50.

Call, 6,000 strike: (6,045.50 minus 6,000) x $100 = $4,550 paid to the holder, debited from the assigned writer.
Put, 6,000 strike: out of the money, expires worthless.
If the call had been bought for $30.00, the cost was $30 x $100 = $3,000, so the net profit would be $1,550.
If the settlement value had been 6,020: $2,000 received, a net loss of $1,000.
Breakeven at expiration: 6,000 + 30 = 6,030.

No shares, no margin needed to take delivery, no position left over the weekend. Just cash.

SPX vs SPY: the classic comparison

Both track the S&P 500, and they are the most common example of how exercise style and settlement differ.

	SPX options	SPY options
Underlying	S&P 500 Index	SPDR S&P 500 ETF Trust (an ETF)
Exercise style	European	American
Settlement	Cash	Physical (100 ETF shares)
Multiplier	$100 x index level	100 ETF shares
Size	About 10 times SPY	SPY trades at roughly one-tenth of the index level
Early assignment risk for writers	None	Yes, including around SPY’s dividend dates
Where it trades	Cboe (exclusive)	Many US options exchanges
US tax treatment	Generally Section 1256 (60/40)	Ordinary equity option rules

With the index at a hypothetical 6,000, one SPX contract controls about 6,000 x $100 = $600,000 of index value. A SPY option on a roughly $600 ETF controls about $60,000. Cboe also lists Mini-SPX (XSP) options at one-tenth the size of SPX, which are European style and cash settled like SPX.

The tax difference is a big one in the US. Broad-based index options like SPX are generally treated as Section 1256 contracts, with gains taxed 60% long-term and 40% short-term regardless of holding period, and marked to market at year end. SPY options are not. Details are in how options are taxed in the US.

AM settlement vs PM settlement

Cash-settled index options also differ in which index value they settle to.

PM-settled options settle on the index’s closing value on the last trading day. SPX Weeklys and dailies (symbol SPXW), which expire every weekday, are PM settled, and they trade until the close on expiration day.
AM-settled options settle on a value calculated from the opening prices on expiration day. Standard monthly SPX options (symbol SPX) are AM settled to the Special Opening Quotation (SOQ), built from the opening trade price of each component stock on the third Friday. Trading in these options stops at the close the day before.

The SOQ is not the index level you see at 9:30 a.m. Eastern. Because it’s built from each stock’s own opening trade, some of which open late, it can differ noticeably from both the previous close and the early index prints. That means an AM-settled position is exposed to whatever happens overnight, after the last chance to trade it.

Dated example: the December 2026 standard monthly SPX options expire on Friday, December 18, 2026; their last trading day is Thursday, December 17, and they settle to the SOQ on the morning of December 18.

Cboe announced in 2026 that, starting with trade date November 9, 2026 and subject to regulatory review, it would begin listing AM-settled weekly SPX options under the symbol SPXO, initially on expirations aligned with monthly VIX settlement dates. As of November 2026, check Cboe’s product pages for which SPXO expirations are listed.

In Canada

On the Montréal Exchange:

Equity and ETF options are American style and physically settled, 100 shares per contract.
S&P/TSX 60 Index Standard Options (SXO) are European style and cash settled, at C$100 per index point. The final settlement price is the official opening level of the index on expiration day (the third Friday), and the last trading day is the business day before. That makes SXO AM settled, much like monthly SPX.
Options on the iShares S&P/TSX 60 Index ETF (XIU) are American style, the Canadian counterpart of the SPX vs SPY contrast.

Both are cleared by the Canadian Derivatives Clearing Corporation (CDCC). The market structure on both sides of the border is covered in how options markets work.

What it means for writers

For someone who has written options, exercise style changes the risk profile:

American style: you can be assigned any business day. A short call can become a short stock position the day before an ex-dividend date. A short leg of a spread can be assigned while the long leg stays open.
European style: no early assignment, so a spread stays intact until expiration. The risks shift to the settlement value itself, particularly the overnight gap for AM-settled options.
Physical settlement: an assignment leaves you with a stock position you then have to manage, possibly over a weekend.
Cash settlement: the position ends with a cash debit or credit, with nothing left over.

What can go wrong

Assuming you can exercise a European option early. You can sell it, but you can’t exercise it before expiration.
Holding an AM-settled option into expiration without realizing trading has stopped. Standard monthly SPX can’t be traded on settlement morning; the outcome depends on the opening prints.
Forgetting the size. One SPX contract is about ten times a SPY contract. A 10-point move in SPX is $1,000 per contract.
Unexpected stock positions. Physically settled options can leave you long or short 100 shares per contract after expiration, which matters if the stock gaps over the weekend.
Confusing tax treatment. SPX and SPY can be taxed very differently in the US.

The takeaway

American options can be exercised any day; European ones only at expiration. Stock and ETF options are usually American and settle in shares; broad index options are usually European and settle in cash, with AM-settled contracts settling to opening prices and PM-settled contracts to the close. SPX and SPY track the same index but differ in exercise style, settlement, size, and US tax treatment, which is why it pays to know which one you’re looking at.