The call option is a European option. European options can only be exercised at expiration, whereas American options can be exercised at any time up until the expiration date. This assumption is not important because few options are exercised prior to expiration. When an option is exercised prior to expiration, the option holder loses the value of any premium (the difference between the market value of the option and option’s intrinsic value, which is defined as the difference between the stock price and the exercise price) that is contained in the option price. L01