An expiration date for derivatives – such as options or futures contracts – is the last day that the contract is valid. Either before or on this day, traders usually decide what to do with their financial position.
Before an option expires, the owner can choose to take up the option, close the position to realise the profit or loss or let the contract expire as worthless.
Futures contract owners can also roll over the contract to a future date. They can also close the position and accept delivery of the asset or commodity.
Expiration date and options values explained
Expiration dates vary depending on the derivative.
The expiration date for US stock options is usually the third Friday of the contract month or the month when the contract expires. If the Friday falls on a holiday, the expiration date is the Thursday immediately before the third Friday.
When an options or futures contract passes its expiration date, it’s invalidated. The last day to trade equity options is the Friday before expiry, so traders must decide what to do on this final trading day.
Specific options have automatic exercise provisions, and they get automatically exercised if they are in the money at the time of expiry. If a trader doesn’t want the option exercised, they must close out or roll the position by the last trading day.
Index options will expire on the third Friday of the month, which is also the last trading day for American index options. For European index options, the final trading is usually the day before expiration.