What is Options Expiration?

Options have fixed lifespans, making them fundamentally different from stocks. Standard monthly options have been listed since the 1970s. Weekly options (weeklys), introduced in 2005, now account for over 40% of options volume due to their lower cost and precise expiration targeting. LEAPS (Long-term Equity Anticipation Securities) have expirations up to 2-3 years out.

Time decay (theta) accelerates as expiration approaches. An option loses roughly one-third of its time value in the last 30 days, and time decay is particularly acute in the final week. This makes buying options near expiration risky for directional traders but profitable for option sellers who collect the decaying premium.

Expiration week often brings increased volatility, particularly for heavily optioned stocks. The phenomenon of max pain — the strike price where the most options expire worthless, costing option buyers the maximum — draws attention as dealers hedge their positions. Massive open interest at specific strikes can create pin risk, where the stock gravitates toward heavily populated strikes.

At expiration, in-the-money options are automatically exercised by the OCC (Options Clearing Corporation) if they are at least $0.01 in the money. This means call holders will buy shares and put holders will sell shares at the strike price. Traders who don't want exercise should close their positions before expiration.