An option (lookback option) that can be exercised at any time before, and including, expiration date. This type of options provides investors with great flexibility as to take advantage of their options when it seems most favorable to do so without having to wait till expiration (in which case they would run the risk of missing out a profitable early exercise when an option gets deep in the money). This flexibility implies that the premium of an American option is higher (or at least not lower) than the premium of a European option whose all other features are identical to those of the American option. Most of exchange-traded options are American-style.
The lookback feature means the payoff is based on the minimum (call) or maximum (put) price of the underlying between the purchase date and expiration date of the option. Therefore, American lookback options guarantee the most favorable exercise price for their holders.
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