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American Option

Category — Bond Option Types
An American option is a type of a call or put option that entitles a holder or an issuer, respectively, to early redemption of a bond on any day of a predetermined period.

American option bonds generally require lock-in period during which the security may not be redeemed through the American option. Frequently, this lock-in period is also the Make-Whole Call option period, upon the expiry of which the American option starts. In most cases, an American option will last either until the bond maturity date (for example, Sienna Senior Living, 3.45% 27feb2026, CAD (B)) or until the start date of the next American option (for example, Michaels Stores, 4.75% 1oct2027, USD), including the notice period.

Under otherwise equal conditions, the American call option reduces the bond’s value more than the European or Bermuda one, as its interval nature increases the risk of early redemption for the holder. Similarly, the American put option increases the bond’s value more significantly.
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