Options Expiration Times: What You Need to Know

When it comes to options trading, understanding the expiration times is crucial for making informed decisions. Options expiration can significantly impact trading strategies, risk management, and overall performance. In this detailed guide, we’ll explore the various expiration times for options, how they influence trading decisions, and strategies to optimize your trades based on these timings.

Understanding Options Expiration

Options contracts have specific expiration dates, which dictate when the contract will expire and when the underlying asset will be settled. The expiration date is the final day on which an options contract is valid, and it can vary depending on the type of option and the trading platform.

1. Standard Expiration Times

For most options, particularly those traded on major exchanges like the Chicago Board Options Exchange (CBOE), the standard expiration time is the third Friday of the expiration month. The market closes at 4:00 PM Eastern Time (ET) on this day, and options that are not exercised or closed by this time become void.

2. Weekly Options Expiration

Weekly options, as the name suggests, expire on a weekly basis. These options have a shorter lifespan compared to standard monthly options. They typically expire every Friday, but this is subject to adjustments for holidays or market closures. Weekly options offer traders flexibility and opportunities for short-term strategies.

3. Quarterly Options Expiration

Quarterly options expire at the end of each fiscal quarter. These options provide a broader timeframe compared to weekly options, aligning with the quarterly reporting schedules of many companies. Expiration dates for quarterly options are the last trading day of the quarter, usually the last business day of March, June, September, and December.

4. Long-Term Equity Anticipation Securities (LEAPS)

LEAPS are long-term options that extend beyond the typical one-year period. LEAPS options can have expiration dates up to three years in the future. They are ideal for investors looking for long-term strategies and have more extended time horizons. LEAPS expire on the third Friday of the expiration month, similar to standard options.

5. Expiration Times for Different Option Types

• Call Options: Expire at the end of the trading day on the expiration date. If the call option is in the money, the holder has the right to purchase the underlying asset at the strike price before market close.

• Put Options: Also expire at the end of the trading day. If the put option is in the money, the holder has the right to sell the underlying asset at the strike price before market close.

6. Expiration Time Adjustments

Options expiration times can be affected by several factors, including market holidays, early closings, or changes in exchange rules. It’s essential for traders to be aware of these adjustments to avoid unexpected outcomes.

7. Trading Strategies Based on Expiration Times

Understanding expiration times is not just about knowing when an option expires; it’s about how you can leverage this information for strategic trading. Here are a few strategies to consider:

• Near-Term Trades: For options nearing expiration, traders often use strategies like the Iron Condor or Butterfly Spread to take advantage of time decay and volatility.

• Long-Term Trades: For those using LEAPS or quarterly options, long-term strategies like covered calls or protective puts can help manage risk and capitalize on longer-term trends.

8. The Impact of Expiration Times on Volatility and Pricing

Expiration times affect the volatility and pricing of options. As options approach their expiration date, their time value decreases, and the impact of volatility on the option price becomes more pronounced. This phenomenon, known as time decay or theta decay, can influence trading decisions and strategies.

9. How to Manage Options as They Approach Expiration

Traders need to make crucial decisions as options approach their expiration dates:

• Exercise or Sell: Decide whether to exercise the option, sell it, or let it expire worthless based on its profitability and your overall strategy.

• Roll Over: If you want to maintain your position, consider rolling over the option to a later expiration date.

10. Conclusion

Options expiration times are a fundamental aspect of trading that affects various strategies and decision-making processes. By understanding the different expiration times, their impact on options pricing and volatility, and employing suitable trading strategies, you can enhance your trading approach and potentially improve your performance in the options market.