Expiration Date (Derivatives)

If the stock price at expiration is lower than the exercise price, the holder of the options at that time will let the call contract expire and only lose the premium or the price paid on transfer.

After the put or call expires, time value does not exist. 

Position sizing and aggressive risk management is key here. Option buying strategies attempt to make money if the underlying stock sees a faster move than what the options are pricing in.

Option Expiration 

Basics Of Options Trading Explained. Home > times regarding the expiration of Options I am sure by now you already know that Stock Options have an expiration date.

So, we go back to the original cycle and add October because it is the next month in the January cycle after July. So the March, April, July and October options will now be available. The same reasoning determines what months are trading for stocks on the February and March cycles. That is why in our example above, Microsoft and CitiGroup had them while Progressive did not.

LEAPS are long-term options that, with some exceptions, are no more than three years out and usually trade with a January expiration date. When it is time to add or go beyond January in the normal rotation not including the current or near-term contract , the January LEAPS that has been "hit" becomes a normal option, which also means the root symbol changes and a new LEAPS year is added. Let's go back and look at our original examples and walk through what happened to Microsoft and CitiGroup.

For Microsoft we go back to May of Once the May options expired, another month needed to be added. The two front months, June and July, were already trading, as was the next month in the cycle: So, following the rules for the January cycle, we would need to add the January expiration month. So, instead those were converted to standard options with an accompanying symbol change , and January LEAPS were added. Nothing out of the ordinary happened to CitiGroup when the May options expired, since it is on the March cycle.

June was already trading, so only the month of July had to be added. But let's follow through what happens after the June expiration. For the regular options, July, September and December were already trading, so all they needed to do was add the second front month: You cannot tell what cycle a stock is on by looking at the front two months: To figure out the cycle, you need to look further out at the third and fourth months.

You can usually tell from the third expiration month available. Just keep adding three months to the third month until you reach January, February or March. CitiGroup has December as the third contract month , so if we add three months we arrive at March. We therefore know that CitiGroup is on the March cycle.

That said, you have to be careful if the third month out happens to be January. In that case, you need to look farther out to see what the fourth month is to confirm what cycle the stock is on. This strategy of trading put option is known as the long put strategy. See our long put strategy article for a more detailed explanation as well as formulae for calculating maximum profit, maximum loss and breakeven points.

Protective Puts Investors also buy put options when they wish to protect an existing long stock position. Put options employed in this manner are also known as protective puts. Entire portfolio of stocks can also be protected using index puts. Selling Put Options Instead of purchasing put options, one can also sell write them for a profit. Put option writers, also known as sellers, sell put options with the hope that they expire worthless so that they can pocket the premiums.

Selling puts, or put writing, involves more risk but can be profitable if done properly. If you don't have enough capital, you will get a margin call on Monday. You also have gap risk. This happened to me back in I had a pretty decent-sized iron condor in BIDU. This was back before their I found on Saturday that the short options had expired in the money, and that I now had a sizeable long position on in BIDU. Make sure your books are cleared out of all in the money options if you don't want to get assigned.

What if I'm short a call without stock? If you have a sold call, you will be given a short position if you don't own the stock already. This is known as a "naked" call rather than a "covered" call. Margin to hold this short is determined by your broker, and to eliminate the short you will have to "buy to close" on that stock.

What about options pinning? See my full guide on options pinning. Can You Get Assigned Early? There are two types of options: With European-style options, you can't get assigned early. Most options are American style, but you rarely have early assignment. What if I don't want to get assigned? So you're coming into options expiration with short options that are in the money.

And you don't want to be short the stock or own the stock. Be proactive with your trades. Close out the in the money option completely. This may be difficult into options expiration as the liquidity will dry up and you will be forced to take a worse price. Roll your option out in time or price. These kinds of rolls, as detailed in my options trading course, will move your position into a different contract that has more time value, or is out of the money.

These are known as calendar rolls, vertical rolls, and diagonal rolls. A good rule of thumb is if your option has no extrinsic value time premium left, then you need to adjust your position. How To Make Money Trading Around Expiration Because of that "gamma impulse" we talked about earlier, the risks and rewards are much, much higher compared to normal options tarding. There's two groups of OpEx trades to consider: Option buying strategies attempt to make money if the underlying stock sees a faster move than what the options are pricing in.

The profit technically comes from the delta directional exposure , but since it is a long gamma trade, your directional exposure can change quickly leading to massive profits in the very short term. The main risk here is time decay.

Option selling strategies attempt to make money if the stock doesn't move around that much. Since you are selling options you want to buy them back at a lower price. And since option premium decays very fast into OpEx, the majority of your profits come from theta gains.


Expiry Date 

All options have a limited useful lifespan and every option contract is defined by an expiration month. The option expiration date is the date on which an options contract becomes invalid and the right to exercise it no longer exists.

The expiration date for listed stock options in the United States is normally the third Friday of the contract month, which is the month when the contract expires. However, when . Deciding to trade a stock option requires choosing an expiration month. Because option strategies require making modifications during the life of a trade, you need to know in what months the options will expire. 

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Selling Put Options

What are the Options Expiration Dates? Technically, expiration occurs on Saturday. That's when settlement actually occurs. But since the market's don't actually trade on Saturday, we treat Friday as the effective expiration date. For monthly option contracts, the expiration is the Third Friday of each month. Have options from an employee stock option Expiration date – the date by which you 00 a share and you decide to exercise your employee stock options.

Option Expiration and Option Expiry Date defined for the beginning call and put option trader, includes examples of Option Expiration. Our free stock-market game • Trade your virtual portfolio in real time • Talk strategies in group discussions • Find or create a game that suits you.

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