Expiration is one of the differentiating factors between stocks and options. As long as a company is publicly traded, there is no expiration on shares. Options, on the other hand, have expirations.
All underlyings have standard monthly expirations. Generally, this is the third Friday of each month. Most underlings have a P.M. settlement, which means that you can trade that expiration up until the closing bell on Friday. Most traders use these standard monthly expirations, so they are generally the most liquid.
Some underlyings have irregular monthly expirations. For example, VIX expires on Wednesday, and it is A.M. settled. This means that the last day to trade VIX expiration is Tuesday. Regular SPX monthly expirations are on Friday, but they are A.M. settled. Therefore, the last day to trade a regular SPX monthly expiration is Thursday. It’s important to do a little research on your underlying, to ensure you know when the expiration really is.
A lot of the more liquid underlyings have weekly expirations that expire every Friday and are P.M. settled. This includes SPX, which makes that underlying more tricky to keep track of expiration and when the last day to trade it really is. Weekly expirations are usually less liquid than monthly expirations, but they can still be heavily traded. SPY is a great example of this. Weekly expirations that encompass earnings announcements are usually the most liquid.
At expiration, one of two things happens depending on whether your option is in the money (ITM) or out of the money (OTM).
If an option is ITM, it will be converted to long or short shares of stock. Long calls and short puts will convert to long shares of stock. Long puts and short calls will convert to short shares of stock. Vertical spreads that are completely ITM will offset and result in either max profit or max loss depending on whether the spread is a long or short spread.
If an option is OTM, it will disappear from the account. Calls that are above the stock price & puts that are below the stock price at expiration are OTM, and will expire worthless and disappear. This results in no position, and no commission fees for closing the position!
See our page on Option Value, to see how different expirations affect the pricing of an option!
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