Expiration week is the most dangerous and potentially rewarding time for options traders. The dynamics change dramatically as options approach their final days, creating unique opportunities and significant risks. This guide will help you navigate expiration week like a professional.
What Makes Expiration Week Different
During expiration week, three factors combine to create unique market dynamics: accelerated time decay, elevated gamma, and increased hedging activity. Understanding these factors is essential for survival.
The expiration reality: More money is made and lost during expiration week than any other time in the options calendar. The same leverage that creates opportunity also amplifies mistakes.
Understanding Gamma Risk
Gamma measures how fast delta changes as the stock price moves. During expiration week, gamma for at-the-money options reaches extreme levels.
What This Means in Practice
- An ATM option with 5 days to expiration might have a gamma of 0.10
- That same option with 1 day to expiration might have a gamma of 0.50
- A $1 move in the stock could change the option's delta by 50%
- Positions can swing from profitable to unprofitable (and back) within hours
Gamma Risk Example
You sold a $100 strike put on expiration Friday morning with the stock at $101. Delta is -0.40, gamma is 0.45.
- 10:00 AM: Stock drops to $100 (ATM). Delta now -0.85
- 11:00 AM: Stock drops to $99 (ITM). You face assignment
- 2:00 PM: Stock recovers to $101. Option expires worthless
This volatility is why many traders avoid holding short options into expiration week.
Pin Risk Explained
Pin risk occurs when a stock closes very near a strike price on expiration day. Traders with short options positions face uncertainty about whether they will be assigned.
Why Stocks Pin to Strikes
Market makers and large institutional traders hedge their options positions by buying and selling the underlying stock. As expiration approaches, this hedging activity can push stock prices toward heavily traded strike prices.
Managing Pin Risk
- Close positions before expiration day to avoid uncertainty
- If holding through expiration, have a plan for assignment
- Avoid strikes with massive open interest
- Monitor after-hours trading if your short option is near the money
The Expiration Week Timeline
Monday of Expiration Week (5 DTE)
Most professional traders use Monday as their final opportunity to close or roll positions. By Monday, you should have already decided whether to hold into expiration or exit. Premium is still sufficient to close profitably if your trade has worked.
Tuesday and Wednesday (4-3 DTE)
These are critical decision days. Theta decay accelerates significantly. If positions are profitable, strongly consider closing. If positions are challenged, the window for effective adjustment is closing rapidly.
Thursday (2 DTE)
Thursday is traditionally the last day conservative traders hold positions. Gamma risk becomes pronounced. Any positions held past Thursday should be small enough that worst-case assignment scenarios are acceptable.
Expiration Friday (1 DTE to 0 DTE)
Expiration day is the most volatile. Options can swing from worthless to valuable and back multiple times. Only experienced traders should have open positions on this day.
Professional approach: Most professional options sellers close 80%+ of their positions before expiration week even begins. The remaining premium is not worth the elevated risks.
Expiration Week Strategies
The Conservative Approach: Exit Early
Close all positions by the Friday before expiration week. This approach sacrifices the final 10-15% of potential profit but eliminates expiration week risks entirely.
The Moderate Approach: Monday Exit
Hold positions into expiration week but close by Monday afternoon. This captures some additional decay while avoiding the worst of gamma risk.
The Aggressive Approach: Manage Through Expiration
Hold positions through expiration week, managing actively. This approach requires constant monitoring and the ability to act quickly on changing conditions.
Comparing Approaches
Sold a $2.00 credit spread with 45 DTE. Current value at different exit points:
- Exit Friday before exp week (8 DTE): Close for $0.50, profit $1.50 (75%)
- Exit Monday of exp week (5 DTE): Close for $0.35, profit $1.65 (82%)
- Hold to expiration (0 DTE): Expires worthless, profit $2.00 (100%)
The question: Is an extra $0.35-$0.50 worth the gamma risk?
Expiration Day Trading Tactics
Morning Session (9:30 AM - 11:00 AM)
The morning session often sees the largest moves as overnight positions are unwound and daily direction is established. If trading expiration day, the morning provides the most liquidity and the widest opportunity set.
Midday Lull (11:00 AM - 2:00 PM)
Premium erodes steadily during the lunch hours. This period is often quiet but can see sudden moves. Avoid opening new positions during this window.
Final Two Hours (2:00 PM - 4:00 PM)
The final hours are dominated by hedging flows and position squaring. Moves can be sharp and unpredictable. If you have positions, this is when you must be most vigilant.
Assignment and Exercise
Understanding Exercise Cutoffs
Options can be exercised until 5:30 PM ET on expiration day. This means you will not know your final assignment status until after the market close. Plan accordingly.
After-Hours Risk
Stocks can move significantly after the 4:00 PM close. An option that was out of the money at 4:00 PM could be in the money by 5:30 PM due to after-hours trading. This creates unpredictable assignment risk.
Avoiding Unwanted Assignment
- Close in-the-money short options before 4:00 PM
- Do not assume near-the-money options will expire worthless
- Monitor any positions that are within $0.25 of the strike
Rolling Out of Expiration Week
If you want to maintain a position but avoid expiration week risks, rolling to the next expiration cycle is often the best approach.
When to Roll
- Position is profitable but you want to continue the strategy
- Position is slightly underwater but thesis is still valid
- You want to collect additional premium while extending time
How to Roll
Close the current position and open a new position in the next expiration cycle simultaneously. Most brokers offer roll functionality that executes both legs as a single order.
Rolling Example
You sold the $95 put for $1.50. Expiration week arrives with the stock at $96 and the put worth $0.40.
- Option 1: Close for $0.40 profit of $1.10
- Option 2: Roll to next month's $95 put for additional $1.20 credit
- Rolling nets: $0.80 additional credit while maintaining the position
Special Situations During Expiration Week
Dividends
If a stock goes ex-dividend during expiration week, in-the-money call options may be exercised early to capture the dividend. This can result in early assignment for call sellers.
Earnings
If earnings fall during expiration week, options will have additional premium (IV) that collapses after the announcement. This creates complex dynamics for both buyers and sellers.
Index Options
Index options like SPX settle in cash and have unique timing. AM-settled options use the opening price on expiration day, while PM-settled options use the closing price.
Track Your Expiration Week Performance
Pro Trader Dashboard shows you how your trades perform during expiration week versus other periods. Identify whether you should be more or less active near expiration.
Summary
Expiration week requires different tactics than normal options trading. Gamma risk, pin risk, and assignment uncertainty create a challenging environment. Most traders are best served by closing positions before expiration week or by Monday at the latest. If you do trade through expiration, use smaller position sizes, monitor actively, and have clear plans for all scenarios. The additional premium collected rarely justifies the elevated risks for most trading styles.
Learn more about managing options timing with our guides on when to roll options and what happens at options expiration.