Options Expiration

| December 8, 2011 | 0 Comments

An option expiration is the date which the contract comes due.  It’s the date where an options becomes worthless, unless exercised and the buyer no longer has to rights specified in the contract.

When is options expiration…

Although certain expirations have changed over the past few years, the normal equity option expiration date occurs on the third Friday of every month.

Now this can be a little deceiving.

In actuality, at 4pm EST, the third Friday of every month is the last time you can trade options.  At 5:30pm EST on the same Friday is the last time you can exercise your option by notifying your broker.

Finally… at 11:59 on that Saturday, all options officially expire.

Why do some equities have different expiration months?

Option expiration cycles are set directly by the Chicago Board of Options Exchange (CBOE).  The system was originally established for order and liquidity.

However, over the years, and as new stocks come to market, option cycles are usually assigned around a company’s earnings.

There’re three main expiration cycles.  Although every stock shows options for the two front months, the cycles are as follows.

  • The January cycle: January-April-July-October
  • The February cycle: February-May-August-November
  • The Marc cycle: March-June-September-December

What happens if you forget to exercise your option?

Recently the Options Clearing Corporation (OCC) has instituted a safeguard so you don’t miss out on an expiration.

You see, the OCC assumes that with so many options contracts on the market, mistake will occur.  You may forget about an option you are holding, or you may just be on vacation.

So, the OCC will automatically exercise any option that is more than $.01 in-the-money.

But only if it’s in your favor.

Category: Options Trading Basics

About the Author ()

A former banking executive, Corey Williams is the Chief Options Strategist and co-editor of our well-known daily newsletter, Options Trading Research. Corey’s extensive experience with options goes all the way back to his days in corporate finance. It was this decade in banking where Corey discovered the most important skill an options trader can have– the ability to analyze a company or sector to determine its likely future direction. And now he’s brought this background, experience and love of options to Options Trading Research, the unique daily e-letter devoted exclusively to helping individual investors profit from the very lucrative options market.