What are index options contracts characterized as?

Index options contracts are characterized as being both American and European. This means that depending on the specific index option, the method of exercise can vary: some can be exercised any time before expiration (American-style), while others can only be exercised at expiration (European-style).

American-style index options allow the holder the flexibility to exercise their option at any point before the expiration date. This can be an advantage for traders who want to respond quickly to market conditions.

On the other hand, European-style options are more rigid in that they can only be exercised at expiration. This restriction can affect the strategy employed by traders, as they must consider price movements and volatility leading up to that single point in time.

Understanding that index options can include both types ensures that traders and investors are aware of the strategies and potential outcomes they may face. This dual characteristic is a distinctive feature not found with all types of options, which may only fall into one category or the other.