What is Expiration Date?
Definition
The expiration date is the last day an option contract is valid. After this date, the option ceases to exist. Options with more time until expiration are more valuable because there is more time for the underlying to move favorably.
Detailed Explanation
Standard equity options expire on the third Friday of the expiration month. Weekly options (weeklies) expire every Friday. LEAPS (Long-term Equity AnticiPation Securities) have expirations up to two or three years out.
Time value decays as expiration approaches, a phenomenon called theta decay. This decay accelerates dramatically in the final 30 days, making short-dated options particularly risky for buyers and profitable for sellers. Options lose roughly two-thirds of their time value in the final third of their life.
Selecting the right expiration depends on your investment thesis and timeline. Longer expirations give your thesis more time to play out but cost more premium. Shorter expirations are cheaper but leave less margin for error and suffer faster time decay.
At expiration, ITM options are typically automatically exercised. Most traders close positions before expiration to avoid exercise/assignment complications and to capture remaining time value. Only about 7% of options are actually exercised.
Frequently Asked Questions
What happens if I hold an option to expiration?
Are longer-dated options better?
What are LEAPS?
Related Terms
Strike Price
The strike price (or exercise price) is the predetermined price at which an option holder can buy (for calls) or sell (for puts) the underlying asset. It is the most important factor in determining an option's value and risk/reward profile.
Implied Volatility (IV)
Implied volatility is the market's forecast of the likely magnitude of a stock's price movement, derived from option prices. High IV means options are expensive because the market expects large price swings, while low IV means options are cheap because calm conditions are expected.
Options
Options are financial contracts that give the buyer the right, but not the obligation, to buy (call) or sell (put) an underlying asset at a specified price (strike) before a specified date (expiration). They are used for speculation, hedging, and income generation.
Greeks (Delta, Gamma, Theta, Vega)
The Greeks are mathematical values that measure different dimensions of risk in options positions. Delta measures directional sensitivity, gamma measures delta's rate of change, theta measures time decay, and vega measures volatility sensitivity.
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Disclaimer: The information on this page is provided for educational and informational purposes only and does not constitute investment advice. AI-generated analysis may contain errors or inaccuracies. Always conduct your own research and consult a qualified financial advisor before making investment decisions.
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