An American option contract which gives the holder the right, but not the obligation, to buy an underlying asset at an agreed-upon price on or before the expiration date of the contract, regardless of the prevailing market price of that asset at the time of expiration or exercise.
For example, an American call option with an exercise price of USD 50 will be exercised on or before expiration date if the market price of its underlying share is larger than the sum of the exercise price and the premium. Suppose the prevailing market price is USD 56 at a given time before expiration, whilst the option premium paid by the holder was USD 5, then the option should be exercised for the holder to make a profit of 56- 50-5= USD 1 per share. For a contract comprising 100 shares, that produces a total payoff of USD 100.
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