Options Expiration Dates

Equity options are the most common type of option. An equity options contract gives the buyer the right to buy (call option) or sell (put option) 100 shares of the underlying stock. The option contract specifies a set price (strike price) at which the option contract may be settled if the buyer so wishes. The option contract must be exercised by the buyer on or before the options expiration date. Equity options contracts expire four times a year on fixed dates. These dates are the same for all equity options. 

The Chicago Board Options Exchange publishes a yearly calendar of options expiration dates. Equity options expire on the Saturday following the third Friday of the month with one exception. If the Friday is a market holiday the options expiration date is on the Friday. 

The point of equity options trading is to anticipate a change in the value of an underlying equity which will, in turn, change the value of the option. What an option is worth may change substantially during the course of an option contract. In United States versus other options trading one can exercise an option before the options expiration date. 

For example, if the options trader purchases a call option on 100 shares of a stock and the stock goes up substantially the trader needs to decide if the stock has run its course and is due for a correction or if it will run a bit more. If the trader believes that the stock has peaked he or she will exercise the option, buy the stock at the strike price and simultaneously sell the stock at the market price (spot price). Closely watching the performance of the underlying stock and understanding the factors that drive its price are part of risk management in option trading. The trader’s profit will be the difference per share between the spot price and the strike price multiplied by 100 shares minus the premium paid to buy the option contract and minus the cost of commissions. 

The premium is also a cost of options trading. If the stock does not go up sufficiently to cover the cost of commissions the trader will most likely let the options expire. This only requires that the trader take no action on or before the options expiration date for the option contract in question. 

If the trader does not exercise the options contract the margin in his or her account that was applied to the contract is freed up and available to cover another options contract. 

Whatever kinds of options trading one engages in there are set options expiration dates and options contracts just are there are in trading equity options. Although the standard options expiration dates for equity options are monthly there are quarterly options expiration dates for a number of equity options and for especially long term, LEAPS options these expire only in September, October, and November of 2010. Longer term options allow for more run up time in case the trader believes a stock will make a move but is not sure of which month, or year!