PART OF
Options Trading Guide
OPTIONS & DERIVATIVES TRADING OPTIONS TRADING STRATEGY & EDUCATION
Expiration Date (Derivatives)
By JAMES CHEN

Reviewed by CHARLES POTTERS
on March 30, 2021
TABLE OF CONTENTS
What Is an Expiration Date?
Basics of Expiration Dates
Expiration and Option Value
Expiration and Futures Value
What Is an Expiration Date? (Derivatives)
An expiration date in derivatives is the last day that derivative contracts, such as options or futures, are valid. On or before this day, investors will have already decided what to do with their expiring position.
Before an option expires, its owners can choose to exercise the option, close the position to realize their profit or loss, or let the contract expire worthless.
KEY TAKEAWAYS
Basics of Expiration Dates
Expiration dates, and what they represent, vary based on the derivative being traded. The expiration date for listed stock options in the United States is normally the third Friday of the contract month or the month that the contract expires. On months that the Friday falls on a holiday, the expiration date is on the Thursday immediately before the third Friday. Once an options or futures contract passes its expiration date, the contract is invalid. The last day to trade equity options is the Friday prior to expiry.1 Therefore, traders must decide what to do with their options by this last trading day.
Some options have an automatic exercise provision. These options are automatically exercised if they are in the money (ITM) at the time of expiry. If a trader doesn't want the option to be exercised, they must close out or roll the position by the last trading day.
Index options also expire on the third Friday of the month, and this is also the last trading day for American style index options. For European style index options, the last trading is typically the day before expiration.1
Expiration and Option Value
In general, the longer a stock has to expiration, the more time it has to reach its strike price and thus the more time value it has.
There are two types of options, calls and puts. Calls give the holder the right, but not the obligation, to buy a stock if it reaches a certain strike price by the expiration date. Puts give the holder the right, but not the obligation, to sell a stock if it reaches a certain strike price by the expiration date.
This is why the expiration date is so important to options traders. The concept of time is at the heart of what gives options their value. After the put or call expires, time value does not exist. In other words, once the derivative expires the investor does not retain any rights that go along with owning the call or put.
The expiration time of an options contract is the date and time when it is rendered null and void. It is more specific than the expiration date and should not be confused with the last time to trade that option.
Expiration and Futures Value
Futures are different than options in that even an out of the money futures contract (losing position) holds value after expiry. For example, an oil contract represents barrels of oil. If a trader holds that contract until expiry, it is because they either want to buy (they bought the contract) or sell (they sold the contract) the oil that the contract represents. Therefore, the futures contract does not expire worthless, and the parties involved are liable to each other to fulfill their end of the contract. Those that don't want to be liable to fulfill the contract must roll or close their positions on or before the last trading day.
Futures traders holding the expiring contract must close it on or before expiration, often called the "final trading day," to realize their profit or loss. Alternatively, they can hold the contract and ask their broker to buy/sell the underlying asset that the contract represents. Retail traders don't typically do this, but businesses do. For example, an oil producer using futures contracts to sell oil can choose to sell their tanker. Futures traders can also "roll" their position. This is a closing of their current trade, and an immediate reinstitution of the trade in a contract that is further out from expiry. 
ARTICLE SOURCES
Related Terms
What Is the Last Trading Day?
The last trading day is the final day that a contract may trade or be closed out before the delivery of the underlying asset or cash settlement must occur. more
What Is Quadruple Witching?
Quadruple witching refers to a date on which stock index futures, stock index options, stock options, and single stock futures expire simultaneously. more
Triple Witching Definition
Triple witching is the quarterly expiration of stock options, stock index futures, and stock index options contracts all on the same day. more
Expiration Time Definition
The expiration time of an options contract is the date and time when it is rendered null and void. more
Automatic Exercise Definition
Automatic exercise is a procedure where the Option Clearing Corporation will automatically exercise an "in the money" option for the holder. more
What Is a Derivative?
A derivative is a securitized contract whose value is dependent upon one or more underlying assets. Its price is determined by fluctuations in that asset. more
Related Articles
OPTIONS TRADING STRATEGY & EDUCATION
Knowing the Differences Between Derivatives and Options
OPTIONS TRADING STRATEGY & EDUCATION
The Difference Between American vs. European Options
ADVANCED OPTIONS TRADING CONCEPTS
Trading OEX Options: The Risk of Early Exercise
OPTIONS TRADING STRATEGY & EDUCATION
The Anatomy of Options
OPTIONS TRADING STRATEGY & EDUCATION
Introduction to Put Writing
OPTIONS & DERIVATIVES TRADING
Tax Treatment for Call & Put Options
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