Expiration Date (Options)
Quick Definition
The last date on which an option contract can be exercised or traded, after which it becomes worthless if not in the money.
What Is Expiration Date (Options)?
The expiration date is the final date by which an option must be exercised or it ceases to exist. For standard U.S. equity options, expiration occurs on the third Friday of the expiration month (with the last trading day being that Friday). Weekly options (weeklys) expire every Friday, and some products offer Monday and Wednesday expirations. Options that are in the money by $0.01 or more at expiration are typically automatically exercised by the Options Clearing Corporation (OCC). Time decay (theta) accelerates as expiration approaches, with at-the-money options losing value most rapidly in the final 30 days. The expiration date is a critical variable in options pricing — all else equal, longer-dated options are more valuable because they have more time for the underlying to move favorably.
Expiration Date (Options) Example
- 1A March 21 call option must be exercised by market close on March 21 — if it's out of the money at that point, it expires worthless and the premium is lost
- 2A trader notices accelerating time decay on their options with 7 days to expiration, losing $50/day versus $15/day when they had 45 days remaining
Related Terms
Time Decay
The reduction in an option's value as it approaches its expiration date, reflecting the decreasing probability of a profitable move.
Theta (Options)
The Greek that measures the rate at which an option loses value as time passes, also known as time decay.
Options Premium
The price paid by the option buyer to the seller for the rights conveyed by the contract, determined by intrinsic value, time value, and volatility.
LEAPS
Long-term equity anticipation securities — options contracts with expiration dates more than one year in the future.
Intrinsic & Extrinsic Value
The two components of an option's price: intrinsic value (profit if exercised now) and extrinsic value (time value plus volatility premium).
Call Option
A contract giving the holder the right, but not the obligation, to buy an underlying asset at a specified price within a specified time period.
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