Can some one please confirm the below things for me?
MCX commodity options are European style ? If yes , then if 1 buy a CE , I cannot square off before expiry date ? I think squaring off an open CE position is the same as exercising it , am I right / wrong?
NSE currency options are American style ? If yes , then same question as above , I can square off open buy positions Ce/PE and squaring off open long positions is the same as exercising?
If I’m wrong and exercising is different than squaring off , how exactly does exercising work?
American and European styles are to do with whether the holder of the option can exercise the option before expiry (american) or not(european).
Say you sold PE of an underlying (Infosys) and the contract becomes ITM, the buyer of the contract may choose to exercise (sell or PUT) his option. At that point, you will be forced to take delivery.
I think a contract is american or european is really dependent on the specification. Most index based derivatives are european as there is no real delivery happening. Whereas etf/stocks/commodities can be physically delivered and the style is based on contract specification.
Most people (including myself) get confused with delivery and buy/sell of a contract. A sold contract can be bought back at any time regardless of its style (american/european) albeit at the market price.
American and European styles are just names commonly used to point to specific terms that are included in one option. Knowing these differences and particularities is essential for every trader as it can completely change outcome of his trading strategy