There are a few components of an options contract – the strike price, the underlying stock in question, the quantity, and of course, whether the contract is a call or put. But today, we’re going to talk about the expiration date. More specifically, when do stock options expire? Not just the date – but what time do stock options expire?
Understanding the timing aspect of your contract is key to not only picking favorable contracts but ensuring you exercise them at the right time – before it’s too late. After all, the more time you have on your side, the greater likelihood that your contract will fall in the money so you can earn a profit.
We’ll talk about this in our complete guide below. But, let’s start by getting one thing out of the way: do stock options expire?
Do Stock Options Expire?
Yes – stock options expire. And, that’s what makes them such an interesting investment vehicle – they only have value until the point at which they expire. Once that day comes, the contract is null and void. In other words, it’s worthless.
And there is an interesting relationship between time and the value of your options contract. The closer it gets to that expiration date without being “in the money” or in other words profitable, the less value it has.
All of this is to say that picking options contracts with more favorable expiration timelines is key to setting yourself up for success. As you can imagine, though, options contracts with longer timeframes are more expensive because you have time on your side. We’ll talk more about picking contracts with favorable expiration dates later on. But for now let’s get to the main question that brought you here today: when do stock options expire?
When do Stock Options Expire?
This isn’t a question that has a one size fits all answer – as it’s determined by the specific options contract in question. So below, we’ll highlight a few common timelines for options contracts:
- Monthly Expiration: This is the most common expiration timeline for stock options. Most equity options, including those traded on major exchanges like the New York Stock Exchange (NYSE) and the NASDAQ, expire on the third Friday of each month.
- Weekly Expiration: Some options, particularly those on exchange-traded funds (ETFs), index options, and certain stocks, have weekly expiration dates. These options expire on Fridays, except for the third Friday of the month when monthly options expire.
- Quarterly Expiration: Options on futures contracts, known as futures options, have quarterly expiration dates. These options expire on the last business day of March, June, September, and December.
- LEAPS Expiration: Long-term equity anticipation securities (LEAPS) are options with an expiration date of up to three years in the future. These options can be useful for investors looking to hedge long-term positions or for those who want to take a long-term position on a stock or index.
What Time do Stock Options Expire?
Beyond the actual date on which options expire, you may be wondering – what time do stock options expire? While different contracts may have different expiration times, your contract will likely expire when the market closes – which is 4:00 pm Eastern Standard Time (EST).
Now, that doesn’t mean that you can always exercise your options contract at 3:59 PM EST and have the order go through. You need to give your broker enough time to process the other – and they will likely have their own “expiration date/time” by which you’ll have needed to exercise your option to ensure it goes through before the expiration of the contract itself.
What to do When Stock Options Expire: 2 Options
Now that you know when stock options expire, the question is…what should you do in the days leading up to your expiration date? It depends on the circumstances of your unique situation – are you in the money? If so, you’ll want to exercise the option of course!
But if your position hasn’t worked out how you’d hoped, then the alternative option is to simply let it expire worthless – because exercising the option would likely end up costing you more profit than the loss of premium. Here’s a deeper look at your options – starting with exercising the contract:
Exercise Your Option
What does it mean to exercise an option? This is something we wrote a complete guide on – but chances are, you’re already familiar with what this means. If you choose to exercise your option, you are choosing to buy or sell the underlying stock at the strike price specified in the contract.
This is your best bet if the underlying stock has performed as you expected it to, and you want to take advantage of the potential profit. And many contracts have an automatic exercise option built in. If your contract is in the money, you often won’t have to do anything – the order will trigger on its own. Still, it’s worth checking to see if this is the case. If not, you’ll want to contact your broker to exercise the option.
So, if you purchased a call option and the contract is in the money, exercising would mean you need the capital on hand to actually purchase the shares as they’re laid out in the contract. Then, you could choose to either sell them immediately for a profit (because you were able to purchase at a discount as a result of your contract) OR hold them a bit longer if you suspect the underlying stock will continue to rise in value.
Let the Contract Expire
But – what if your contract isn’t favorable, and exercising your option doesn’t make sense? You can simply let it expire. This is one of the benefits of options trading. Your downside is limited just to the premium you paid for your contract. And because you’re able to purchase contracts at such low costs, it typically makes more sense to do nothing and let the expiration date come and go rather than digging yourself a deeper hole.
Tips for Configuring Your Options Contracts With Favorable Expiration Dates
Before we bring this article to a close, we want to offer a few tips for configuring your options contract with favorable terms. This will help you set yourself up for success and enjoy lucrative options trading.
- Consider your investment goals: Before choosing an expiration date for your options contract, consider your investment goals and strategy. If you’re looking to make a short-term investment, a contract with a monthly or weekly expiration date may be more appropriate. If you’re looking to make a long-term investment, a contract with a longer expiration date, such as a LEAPS option, may be a better fit.
- Look at the stock’s historical performance: Reviewing the historical performance of the stock can help you choose a favorable expiration date for your options contract. If the stock has a history of fluctuating in price frequently, a shorter-term expiration date may be more appropriate. If the stock has a history of steady, long-term growth, a longer-term expiration date may be more suitable.
- Pay attention to market volatility: Market volatility can impact the performance of your options contract, so it’s important to pay attention to the overall market conditions when choosing an expiration date. If the market is highly volatile, a shorter-term expiration date may be more appropriate, as it will give you more flexibility to adjust your investment strategy as needed.
- Consider the cost of the option: The cost of the option can impact the profitability of your investment, so it’s important to choose an expiration date that makes sense from a cost perspective. Generally, longer-term options are more expensive than shorter-term options, so consider the cost of the option when choosing an expiration date.
- Be aware of any upcoming events: If there are any upcoming events that may impact the stock’s performance, such as an earnings report or a major product launch, it may be wise to choose an expiration date that falls after the event. This will give you more time to evaluate the impact of the event on the stock’s price and adjust your investment strategy accordingly.
Want to learn more about how to buy and sell options? You can explore our blog for other helpful resources on how to pick stocks for options trading, how options are taxed, options risk management, swing trading options, stock warrants vs options, and a whole lot more.
However, the best way to learn options trading is by doing it yourself. We recommend taking the time to read through our guide to trading options for beginners and even consider investing in some courses. But then, it’s time to put what you’ve learned to practice. Start with paper trading to simulate real options trading experiences, and then, dip your toes in the water by purchasing your first contract.
Final Thoughts on When Stock Options Expire
So, when do stock options expire? It’s dictated by the specific expiration date in your contract. It could be a week from purchasing the contract or 3 years down the road – or anywhere in between. Picking favorable stock options expiration dates is key to successful options trading, so we encourage you to take the time to learn more about configuring your contracts before actually putting your capital on the line.
And while learning when stock options expire is definitely an important component of successful options trading, it’s just one piece of the puzzle. The biggest factor affecting your success rate is the manner in which you find stocks to create contracts for.
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The system saves you time and prevents costly errors by telling you exactly what you should buy, when you should buy it, and when it’s time to sell it. With our proprietary stock screeners in place, you can pull up the best stocks on any given day and start winning more trades with less work. See it in action with a free stock analysis today!