Option expiration is when your options contract reaches its end date. What happens at expiration depends on whether your option is in-the-money or out-of-the-money. Here is what you need to know.
In-the-Money vs Out-of-the-Money
- In-the-money (ITM): The option has intrinsic value. Calls are ITM when stock is above the strike. Puts are ITM when stock is below the strike.
- Out-of-the-money (OTM): The option has no intrinsic value. It expires worthless.
- At-the-money (ATM): The stock is exactly at the strike price.
Key rule: Options that are in-the-money by $0.01 or more at expiration are automatically exercised. Out-of-the-money options expire worthless.
What Happens at Expiration
Long Call (You Bought a Call)
- ITM: Automatically exercised. You buy 100 shares at the strike price.
- OTM: Expires worthless. You lose the premium paid.
Long Put (You Bought a Put)
- ITM: Automatically exercised. You sell 100 shares at the strike price.
- OTM: Expires worthless. You lose the premium paid.
Short Call (You Sold a Call)
- ITM: You get assigned. You must sell 100 shares at the strike price.
- OTM: Expires worthless. You keep the premium.
Short Put (You Sold a Put)
- ITM: You get assigned. You must buy 100 shares at the strike price.
- OTM: Expires worthless. You keep the premium.
Warning: Pin Risk
If the stock is very close to your strike at expiration, you may not know if you will be assigned until after the market closes. This is called pin risk. Close positions before expiration to avoid this uncertainty.
Early Assignment
American-style options can be exercised before expiration. This usually happens when:
- The option is deep in-the-money
- There is an upcoming dividend (for calls)
- There is little time value remaining
Example: Assignment on Short Put
You sold a $95 put when stock was at $100.
At expiration, stock is at $90.
Your put is ITM by $5. You get assigned and must buy 100 shares at $95 (even though the stock is only worth $90).
You now own shares at a cost basis of $95 minus the premium you received.
Expiration Types
- Monthly options: Expire on the third Friday of the month
- Weekly options: Expire every Friday (some stocks)
- 0DTE options: Expire the same day (SPY, QQQ, major indexes)
Best Practices for Expiration
- Close positions early: Do not wait until the last minute. Close before expiration day when possible.
- Check your positions: Know what you have expiring each week.
- Avoid pin risk: If stock is near your strike, close or roll the position.
- Watch for earnings: Do not hold through earnings unless that is your strategy.
- Have enough cash: If you might get assigned, make sure you have the buying power.
Rolling Options
Instead of letting options expire, you can "roll" them to a later date:
- Close your current position
- Open a new position with a later expiration
- Often done for a net credit (collect more premium)
Track Your Expirations
Pro Trader Dashboard shows all your upcoming expirations. Never be surprised by an expiring option again.
Summary
Options expiration is when your contract ends. ITM options are automatically exercised, OTM options expire worthless. Understand assignment risk, especially for short options. Close positions before expiration when possible to avoid pin risk and unexpected assignment. Keep track of your expirations and manage them proactively.
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