A Study on Stocks and Options with Special Reference to American and European Options

Abstract

This paper provides a comparative overview of stocks and options as investment instruments, with a focus on the difference between American and European options. Stocks represent ownership in a company, whereas options are derivative contracts providing the right, but not the obligation, to buy or sell shares at a pre-defined price. The concepts of intrinsic value, at-the-money (ATM), in-the-money (ITM), and out-of-the-money (OTM) options are explained with examples. American and European options are discussed in terms of their features, flexibility, and pricing, supported by practical scenarios involving Reliance Industries’ share price. The study highlights how these instruments cater to different investor needs such as wealth creation, speculation, and hedging.