Options expiration date

The options expiration date is the last day an options contract remains valid. After this date, the contract ceases to exist, and any right it gave the holder to buy or sell the underlying stock at the strike price is gone. Most standard US equity options expire on a Friday, and the option's value collapses to nothing if it finishes out of the money by the time trading ends that day.

What happens at expiration depends on where the stock is trading relative to the strike price. An option that finishes in the money is typically automatically exercised, resulting in the underlying shares being bought or sold at the strike price, while an option that finishes out of the money simply expires worthless and the holder loses the entire premium paid. Because of this, the closer an option gets to its expiration date, the faster its time value erodes, a process traders track through the option's theta.

Expiration dates also come in different standard cycles. Many stocks have options expiring weekly, monthly, and sometimes with much longer dated contracts called LEAPS that can run a year or more into the future. Traders choose an expiration date based on how much time they expect to need for their thesis to play out, since an option with more time until expiration costs more in premium but gives the underlying stock more room to move in the expected direction before the contract runs out.