Options Expiration
Options expiration is the last day an option can be exercised. Understanding expiration mechanics is critical to avoiding unwanted assignments or losses.
Options expiration occurs on a predetermined date, typically the third Friday of the month for monthly options, or every Friday for weekly options. For equity options, trading ceases at 4:00 PM ET on expiration day, but brokers may have earlier cut-off times for exercise instructions. At expiration, in-the-money options by $0.01 or more are automatically exercised through the Options Clearing Corporation (OCC). Out-of-the-money options expire worthless and cease to exist.
Pin risk occurs when a stock closes exactly at the strike price on expiration day. For example, if SPY closes at $450.00 and you sold the $450 put, it's unclear whether the option will be assigned. A $0.01 move in either direction determines whether the option is $0.01 in or out of the money. This uncertainty can lead to unexpected positions on Monday morning. Traders should close or roll ATM options before expiration to avoid pin risk.
Expiration Cycles and Hours
Options have standardized expiration cycles. Standard monthly options expire on the third Friday of the month. Weekly options (introduced in 2005) expire every Friday, providing 52 expiration dates per year. Some high-volume names also have Monday and Wednesday expirations. Quarterly options expire on the last business day of each quarter. LEAPS (Long-term Equity AnticiPation Securities) expire up to 3 years out. Index options like SPX also offer end-of-month (EOM) expirations. Trading hours for options typically run from 9:30 AM to 4:00 PM ET, though some index options trade nearly 24 hours.
Managing Positions Near Expiration
As expiration approaches, gamma risk increases dramatically. An at-the-mone option in the final hours can swing from worthless to valuable on a small price move. Traders manage this by: (1) closing positions 1-2 days before expiration, especially for strategies with short options; (2) rolling positions to the next expiration to maintain exposure while avoiding gamma risk; (3) setting automated closing instructions with your broker; (4) monitoring positions throughout the final trading day for stocks with high volatility or pending news.
FAQs
Do I need to tell my broker to exercise?
For standard equity options, in-the-money options are automatically exercised by the OCC. If you don't want to exercise an ITM option, you must submit a "do not exercise" (DNE) instruction to your broker, typically by 5:30 PM ET on expiration day.
What happens to options after hours?
Options trading stops at 4:00 PM ET, but the underlying stock may continue trading in after-hours markets. The final settlement price for equity options is the 4:00 PM closing price. After-hours moves do not affect option exercise decisions.
Can I trade options after expiration?
No. Options cease to exist after their expiration. Any option that is not exercised or closed before expiration becomes worthless. There is no grace period or after-expiration trading.