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Tuesday, June 07, 2011

When do Options Expire?

This is a long time coming. I think I've had my reference articles opened in Chrome tabs for a year now (yeah, you read that correctly... one year). So, when do the financial instruments known as options expire? The answer isn't a simple one. It depends on what type of option we're talking about, and potentially on what underlying to which this instrument derives its value. This article aims to distill the answers in as concise a way as possible. Here goes:

Option TypeOption FrequencyExpiration Last Trading OpportunitySettlement Reconciled Proviso
Equity Weekly Friday Fri @ 16:00H Fri @ 16:00HFri @ 17:00H
Equity Monthly Saturday following the third Friday of the monthFri @ 16:00H Fri @ 16:00HSat @ 17:00H
Index (PM) Weekly FridayThu @ 16:00H Fri @ 16:00HFri @ 17:00H
Index (PM) Monthly Saturday following the third Friday of the monthThu @ 16:00H Fri @ 16:00HSat @ 17:00H
Index (AM) Weekly FridayThu @ 16:00H Fri @ AM Fri @ 17:00HSettlement computed once all opening prices of all underlyings that represent this index are recorded
Index (AM) Monthly Saturday following the third Friday of the monthThu @ 16:00H Fri @ AM Sat @ 17:00HSettlement computed once all opening prices of all underlyings that represent this index are recorded
*All times above are Eastern Standard Time (EST)

Allowing the option to expire "worthless" is a bad idea if the price is anywhere near the strike. Due to settlement and reconciliation processes, the option you thought was out-of-the-money may actually end up being in-the-money (and vice-versa). This is particularly bad if you are unhedged in a short position or don't have the funds in an account where a long position is automatically exercised.

Other Facts

American Style Exercise: Options can be exercised anytime before expiration
European Style Exercise: Options can only be exercised at expiration

  • When holidays occur, last trading dates and index settlements get pushed earlier one day (as expected)
  • Equity Options have American Style Exercise
  • Index Options have European Style Exercise -- some are American

Sources

Options Expiration and Exercise
Options Expiration FAQ
CBOE Glossary
Options Don't Expire on Fridays
What are the terms of Short-Term Options?
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