Options expiration

Options expiration is the point at which an option contract ends. After expiration, the holder can no longer exercise the right to buy or sell the underlying security, and the contract is worthless if it finished out of the money. Every listed option is identified in part by its expiration date.

Standard monthly equity options expire on the third Friday of the expiration month. Trading in an expiring option stops when the market closes at 4:00 pm ET that day, though the contract itself technically expires at 11:59 pm ET. Exchanges also list weekly and other short-dated contracts, but the third-Friday monthly cycle is the classic structure tested on securities exams.

Expiration matters because options are wasting assets. As expiration approaches, an option's time value decays toward zero, leaving only intrinsic value — the amount by which it is in the money. Holders of in-the-money options must act: the Options Clearing Corporation (OCC) automatically exercises equity options that are in the money by a set threshold at expiration unless the holder instructs otherwise, while out-of-the-money contracts simply expire worthless.

Options expiration mechanics appear on the SIE exam and other securities exams that cover options. Know the third-Friday rule, the 4:00 pm ET trading cutoff versus the 11:59 pm ET expiration time, and what happens to in-the-money versus out-of-the-money contracts at expiration.