Expiration

Expiration is the date and time when an options contract stops existing as a tradable instrument. Up until that point, an option is a contract giving its owner the right (but not the obligation) to buy or sell an underlying stock at a set price, called the strike price. Once expiration passes, that right is gone — the contract either gets exercised (turned into a stock trade) or it simply expires worthless.

What happens at expiration depends on where the stock price sits relative to the strike. If the option is "in the money" — meaning exercising it would be profitable, such as a call option with a strike below the current stock price — it typically gets automatically exercised or the holder sells it before the deadline to capture the value. If it is "out of the money," meaning exercising would lose money compared to just trading the stock outright, it expires worthless and the holder simply loses whatever they paid for it, called the premium.

The nuance that trips people up is that expiration is not one universal moment. Different option series expire on different schedules — some weekly, some monthly, some quarterly — and the exact cutoff time for trading versus the cutoff for exercise decisions can differ. Traders also confuse an option's expiration with a stock split or a futures contract's expiration, which involve different mechanics entirely. Time value, the portion of an option's price tied to how much time is left before expiration, decays continuously as expiration approaches, accelerating in the final days — this decay is a major reason option prices move even when the stock price doesn't.

For day traders, expiration matters less as a settlement event and more as a source of volatility. As contracts near expiration, price swings in the underlying stock can intensify, partly due to large option positions needing to be hedged or unwound by market makers as expiration nears.