Expiration — Concept Explainer Video

Transcript

A right with a time limit

Expiration is when an option reaches the end of its life. A correct market view can still lose money if the move happens too late. Time remaining is therefore part of the position, not just a date on a screen.

Same strike, different clocks

Two calls can have the same strike but different expirations. Their prices and sensitivities differ because they have different time horizons. A longer dated option often carries more time value, with other contract and pricing inputs comparable.

A late rally does not count

Suppose you buy a one hundred dollar call for three dollars. The stock ends at ninety nine when the option expires, then rallies the following week. That later rally cannot restore the expired option. The three hundred dollar premium was lost.

Know the actual deadline

Expiration date, last trading time, exercise cutoff, and settlement calculation are not always identical. Some contracts use morning settlement. Your broker can impose earlier instruction deadlines. An in the money option can trigger exercise or assignment procedures.

Plan the ending

Before entering, know what happens if you hold through expiration: shares, a futures position, cash settlement, or an option that expires worthless. A closing trade may avoid exercise exposure, but execution and liquidity still matter.