The Unlucky Investor's Guide to Options Trading guides readers through the world of options and teaches the crucial risk management techniques for sustainable investing.
The date at which an option stops trading, and all contracts are exercised or become worthless. Expiration is one of the differentiating factors between stocks and options. As long as a company is publicly traded, there is no expiration on shares. Options, on the other hand, have expirations.
Regular Monthly Expiration
A lot of the more liquid underlyings have weekly expirations that expire every Friday and are P.M. settled. This includes SPX, which makes that underlying more tricky to keep track of expiration and when the last day to trade it really is. Weekly expirations are usually less liquid than monthly expirations, but they can still be heavily traded. SPY is a great example of this. Weekly expirations that encompass earnings announcements are usually the most liquid.
What Happens at Expiration?
At expiration, one of two things happens depending on whether your option is in the money (ITM) or out of the money (OTM).
If an option is ITM, it will be converted to long or short shares of stock.
If an option is OTM, it will disappear from the account.
See our page on Option Value, to see how different expirations affect the pricing of an option!
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