Option Expiration
Definition of Option Expiration Date:
Unlike stocks, options have an expiration date. The option expiration date is the option expires. If the option is out of the money at the expiration date then it just expires worthless and you lose the amount of money you paid for the option. If the option is in the money at the expiration date then you would either sell it or exercise your option.
In the U.S. options technically expire on the third (3rd) Friday of each month. This means that you must either sell or exercise your option by that date. In the U.S., for equity and most index options you can also exercise your option prior to that date. In Europe, you can usually only exercise your options on the expiration date.
However, the option exchanges have begun issuing call and put options that have a weekly expiration. When you buy an option, you need to be 100% clear that you know when it expires. If your option is in the money, you must either sell your option or exercise it by the expiration date. If you have a call option, you would buy the stock at the strike price. If you have a put option, you would sell the stock at the strike price. If the option is "out of the money" then the option just expires worthless and will be removed from your account.
Most brokerages also allow you to setup up your account to receive automated phone, email or text messages to remind you that you have options expiring. These are typically received the Monday of expiration week.
Example of Expiration Date:
Look at the first part of the option chain for April call options on AAPL. The first call option in the left column has an expiration date of Apr 10 (since it's not the 3rd Friday of the month, this must be a weekly option). The second series expires on Apr 17 (which is the regular monthly option for April since the 17th is the 3rd Friday).
Call and Put Option Trading Tip: Always make sure you know the exact expiration date of your options and don't forget it.
If your options are out-of-the-money then they will expire worthless and be removed from your account and you will have lost all of your investment.
If your options are in-the-money then you should either sell them during option expiration week, or, if you want to own the stock you need to call your broker and tell him you want to exercise them at expiration.
If you forget about them and they close in-the-money, then your most brokers will usually exercise them for you!
Here are the top 10 option concepts you should understand before making your first real trade: