Financial Glossary
Expiration
The deadline: when options stop existing and all value is settled.
What is Expiration?
Expiration is the date when an options contract ends and ceases to exist. For US equity options, expiration typically occurs on the third Friday of each month. Before expiration, you can buy, sell, or exercise your option. At expiration, the option either has intrinsic value (in-the-money) or expires worthless (out-of-the-money). There's no middle ground: at expiration, an option is worth either its intrinsic value or zero.
Time to expiration dramatically affects option pricing. Options with more time are worth more (more time value). An out-of-the-money call with 6 months to expiration might be worth $0.50; the same call with 1 day left might be worth $0.01 (theta decay). Understanding expiration dynamics is essential for managing theta risk.
Expiration Mechanics
As expiration approaches, time value decays to zero. If you buy an out-of-the-money call hoping for a last-minute rally, you're racing against the clock—the closer to expiration, the more the stock needs to move for you to profit. For option sellers, expiration is the goal: if the option expires out-of-the-money, the seller keeps the full premium. Long-term traders buy options with extended expirations; short-term traders use options near expiration for cheaper premiums but higher time decay risk.
Early assignment (before expiration) is possible for American-style options, though it's rare for calls (early exercise throws away remaining time value). Knowing your expiration date and planning ahead avoids unwanted surprises.
Disclaimer: Time decay accelerates dramatically as expiration nears. Options can become worthless suddenly. Early assignment can trigger unexpected stock movements. Before trading options near expiration, consult a qualified financial advisor. Options involve substantial risk.