Options Expiration Explained

Understanding expiration is crucial for options traders. Here's what happens when options expire.

Expiration Basics

  • Monthly options: Expire third Friday of each month
  • Weekly options: Expire every Friday
  • Quarterly options: Expire end of each quarter
  • LEAPS: Expire 1-3 years out

    • What Happens at Expiration

    If Option is ITM

  • Calls: Automatically exercised, you buy shares at strike
  • Puts: Automatically exercised, you sell/buy shares at strike
  • Happens if option is $0.01+ ITM

    • If Option is OTM

  • Option expires worthless
  • No action required
  • Premium is lost (for buyers) or kept (for sellers)

    • Managing Expiring Positions

    Close Before Expiration

  • Most traders close 1-2 days before expiration
  • Avoid assignment risk
  • Avoid weekend gap risk

    • Roll to Later Expiration

  • Close current position
  • Open new position at later date
  • Capture more premium

    • Let Expire (if OTM)

  • Option expires worthless
  • You keep premium (if you sold)
  • Save on commissions