Financial options don't just differ in the directional risk they can hedge or create.

They also vary in other features such as their exercise style.

This characteristic is sometimes referred to as the option geography, but it has nothing to do with where the option is traded.

It simply refers to how and when the option can be exercised.

There are three main types of exercise styles, American, European, and Bermuda.

Think of American and European options as the two extremes with Bermuda options Sitting somewhere in between.

Combining features of both, but let's break them down one by one.

American options allow the buyer to exercise the option at any time from the moment they purchase it up to and including the expiry date.

This provides maximum flexibility as the holder is not limited to a specific exercise date.

European options can only be exercised on the expiry date itself.

The holder cannot choose any other dates to exercise the option, which makes this style more straightforward.

In terms of timing, Bermuda options offer a middle ground.

They can be exercised on specific predetermined dates before expiry, as well as on the expiry date itself.

This offers more flexibility than European options, but less than American options regardless of the exercise style. However, remember that options can always be traded at their current market value before expiry.

This means that even if an option can't be exercised early, the holder still has the flexibility to sell the option and exit their position in return for the option, price, or premium if needed.