What is a key feature of American options compared to European options?

American options are characterized by the ability to be exercised at any time before the expiration date. This flexibility provides the holder with more strategic opportunities compared to European options, which can only be exercised at expiration.

The ability to exercise an American option at any point within its life allows the holder to take advantage of favorable price movements in the underlying asset. For instance, if the underlying asset's price increases significantly, the option holder can exercise their option early to capitalize on that increase. This capability can be particularly valuable when dividends are expected to be paid on the underlying asset, as exercising the option before the ex-dividend date may allow the holder to receive the dividend as well.

Understanding this key feature is essential for making informed decisions about options trading, as it influences the pricing and strategy of options holdings significantly.