Expiration Date
What Is an Expiration Date?
The expiration date is the final day on which an options contract can be exercised. After the expiration date passes, the option becomes invalid and can no longer be used.
Options contracts are issued with specific expiration dates that define the lifespan of the contract.
Why It Matters
The expiration date affects the value of an option. As the expiration date approaches, the option may lose value if the underlying asset does not move in the expected direction.
Investors must consider expiration timing when developing options strategies.
How Expiration Dates Work
Options contracts may have expiration periods ranging from days to several months or even years.
Key factors related to expiration include:
- time remaining until expiration
- volatility of the underlying asset
- relationship between market price and strike price
As time passes, the option’s time value typically decreases.
Example
An investor buys an option that expires in three months. If the stock price moves in the expected direction before the expiration date, the option may increase in value.
Expiration Date vs Trade Date
- The trade date is when the option is purchased.
- The expiration date is when the contract becomes invalid.
FAQs About Expiration Dates
What happens when an option expires?
If it is not exercised or sold, it becomes worthless.
Do all options have expiration dates?
Yes. Each options contract has a defined lifespan.
Why does time affect option value?
Because there is less opportunity for the asset price to move favorably.
Related Terms
