Expiration dates

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Every option has an expiration date, after which the contract no longer exists. Standard monthly equity options expire on the third Friday of the month; many active stocks also list weekly expirations, and some index products trade with expirations on most weekdays.

At expiration, an option that is in the money is typically exercised automatically, converting into a stock position at the strike price. An option that is out of the money simply expires worthless.

The distance to expiration is a core part of an option's price. More time means more chances for the stock to move, which is why longer-dated contracts carry higher premiums, all else equal.

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Time enters an option's price through its extrinsic value, and the effect is easiest to see side by side. A stock trades at $100. A $105 call expiring in 30 days is quoted at $2.40; the same $105 strike expiring in 60 days is quoted at $3.60. Both have zero intrinsic value, so the entire difference, $1.20 per share, is the market's price for thirty extra days of possibility.

That time value does not drain away evenly. Its decay, measured by theta, tends to accelerate as expiration approaches, so the final weeks of a contract's life account for a disproportionate share of the erosion.

A few practical mechanics around the date itself:

• Standard equity options stop trading at the close on expiration day, 4:00 p.m. Eastern for most listings.
• In-the-money contracts are exercised automatically after the close under clearing house rules; holders can submit contrary instructions through their broker before the cut-off.
• Out-of-the-money contracts lapse with no further action and disappear from the account.

Comparing prices for the same strike across different dates is a study of its own. The pattern implied volatility traces across expirations is called the term structure, covered under term structure.

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The precise deadlines matter more at expiration than at any other time. Equity options trade until 4:00 p.m. Eastern on expiration day, but the underlying can keep moving in the after-hours session before the exercise cut-off, which brokers set in the early evening. A contract that looked worthless at the close can end up in the money by the cut-off, and vice versa; automatic exercise is based on the official closing price, with a threshold of $0.01 in the money.

Settlement style varies by product. Equity and ETF options settle physically, into shares. Many index options settle in cash and are European style, and some expire on a morning (a.m.) settlement value calculated from opening prices rather than the prior close, a detail that can surprise holders over the final night.

Pin risk is the writer's version of this uncertainty: with the stock closing at or very near the strike, a writer cannot know how many contracts will be assigned, and learns the answer only after the market reopens. Assignment mechanics are covered under exercise and assignment.