AbstractWe extend the quadratic approximation method to examine American‐style options traded using futures‐style margining and show that an early exercise premium can exist when the cost of carry is negative. Empirical results based on a reduced form of the model using futures‐style call options traded on the Australian All Ordinaries Share Price Index are consistent with previous research: call option early exercise premiums are economically zero. Full option prices are examined by comparing observed futures‐style with theoretical stock‐style values. We find futures‐style values exceed stock‐style values and argue that the increase results from improvements in liquidity. The findings are particularly relevant given the pending decision at the Commodity Futures Trading Commission to introduce a futures‐style system in the United States.JEL classification: G13, C13