Title: What Is Expiration Time — A Practical Guide for Options and Derivatives Traders
Key takeaways
– Expiration time is the exact date and clock-time when a derivative (option or future) ceases to be changeable and must be settled.
– Expiration time is distinct from the expiration date and the last trading time; different exchanges and brokers set differing deadlines.
– Contracts that are in-the-money (ITM) at expiration are settled or exercised per exchange/broker rules; out‑of‑the‑money (OTM) contracts typically expire worthless.
– Always check exchange rules and your broker’s cutoffs in advance — many important deadlines occur before the published expiration time.
What is expiration time?
The expiration time of an option or other derivative is the precise date and clock-time at which the contract’s terms are finalized and obligations are settled. After the expiration time, the contract no longer has tradable value: ITM positions are evaluated and settled or assigned, and OTM positions generally expire worthless. (Source: Investopedia)
Expiration date vs. expiration time vs. last trading time
– Expiration date: the final calendar day on which a contract can be exercised or will be considered expired (often referenced as “the third Friday” for many listed U.S. equity options).
– Expiration time: the exact clock-time on that date (or the settlement time specified by the exchange) when the contract’s value is fixed and settlement occurs.
– Last trading time (or last trade): the final time you can buy or sell that contract on the exchange; this is often earlier than the expiration time.
Example: U.S. listed equity options
– Many listed stock options in the U.S. have a last trading day on the third Friday of the contract month (with the formal expiration date sometimes being the Saturday immediately following). If that Friday is a holiday, the last trading day can move to Thursday. Public holders typically must notify brokers by a specified time (commonly late Friday evening) to enable exchange notification before the actual expiration time. (Sources: NASDAQ; Investopedia)
How derivatives are settled at expiration
– Options: If a contract is ITM at expiration, it may be exercised (long-side) or assigned (short-side) and settled according to the contract’s terms and exchange rules. Settlement can be physical (delivery of the underlying asset) or cash-settled (payment of the difference between strike and settlement price).
– Settlement price: For many index-style options (afternoon-settled index options), the exercise-settlement value is calculated from the last reported sales price of the component stocks on the last trading day. (Source: CBOE)
Important caveats at expiration
– Different clocks: Exchanges and brokers use different cutoffs. For example, the CBOE limits trading in some expiring options to 3:00 p.m. Central Time on the last trading day. (Source: CBOE)
– Auto-exercise and after-hours risk: Many brokers/exchanges have automatic exercise procedures for ITM options at expiration. If the underlying trades after the option’s last trading time or after the underlying’s close, a contract that looked ITM at the option close can be pushed OTM (or vice versa) by after-hours moves. That discrepancy can produce unexpected assignment or missed exercise. (Source: Investopedia)
– Exchange-specific settlement rules: The exact method and timing of settlement (e.g., last-sale vs. opening-weighted) depends on the product and the exchange; these rules can change and differ by product. (Sources: CBOE; CME)
Example: SPXW weekly (S&P 500 weekly) options
– SPXW Weeklys are weekly-expiring S&P 500 Index options listed by CBOE. For afternoon-settled index options, the exercise-settlement value uses the last reported sales price of each component stock on the last trading day.
– For expiring SPXW Weeklys, trading in those expiring contracts typically closes at 3:00 p.m. Central Standard Time (CST) on the last trading day; non‑expiring SPXW Weeklys continue until 3:15 p.m. CST. (Source: CBOE)
Practical steps and checklist for traders (actionable)
1. Know the timetable for your specific product
– Identify the exchange’s published expiration time, last trade time, and settlement method for the contract (options vs. futures; cash-settled vs. physical). Check the exchange website and product specs.
2. Confirm your broker’s cutoffs and exercise procedures
– Ask your broker for the last time to submit a notice to exercise, their automatic exercise policy, assignment notifications, and any internal deadlines that may be earlier than the exchange’s.
3. Decide well before the last trading day
– If you intend to exercise or avoid assignment, plan and act before the last trade time rather than relying on last-minute, after-hours moves. Consider closing or rolling positions earlier to avoid forced assignments.
4. Monitor the underlying’s closing price and after‑hours activity
– For options settled on the last reported sales price of components, the timing of those prices matters. If the underlying continues to trade after the option’s last trade, closing/rolling before that cutoff reduces late surprises.
5. Use limit orders (and consider liquidity)
– If you must trade near expiration, prefer limit orders to control execution price and be mindful of thin liquidity and wider spreads in expiring contracts.
6. Prepare for assignment and margin effects
– If you’re short options, ensure you have enough margin or the underlying to meet delivery/assignment obligations. Assignment can happen at expiration or earlier (for American‑style options).
7. For cash‑settled index options, understand settlement calculations
– Check how the exercise-settlement value is calculated (last sale, opening prices, or other methodology) so you know what determines ITM/OTM status.
8. Roll or close — don’t assume automatic protections
– Automatic exercise doesn’t necessarily match your expectations. If you want to keep exposure, roll the position to a later expiry; if you want out, close the position.
9. Document timelines in your trading workflow
– Keep a simple calendar or alerts for last trade times, broker exercise deadlines, and final settlement times for each contract you trade.
A short practical timeline example (U.S. equity options context)
– By the Thursday before expiration: review positions, decide whether to close/roll/exercise.
– Last trading day (typically Friday): last time to trade the option on the exchange (often before market close or an exchange-specified earlier time).
– Broker notice deadline (example noted in sources): brokers commonly require notice by late Friday evening to process exercise requests for the Saturday expiration—confirm your broker’s exact time.
– Expiration time (official): the exchange’s stated time (may be Saturday early morning for some administrative dates, or a specific settlement clock time dependent on the product).
Important reminders
– Rules vary by exchange, product, and broker. Never rely on a generic rule-of-thumb — check the specific product specifications and your broker’s procedures before expiration.
– Most options are closed or offset prior to expiration, but those that reach expiration can cause rapid and sometimes unexpected account changes (assignment, cash settlement, margin impacts).
References and further reading
– Investopedia — “Expiration Time” by Michela Buttignol: https://www.investopedia.com/terms/e/expiration-time.asp
– NASDAQ — “Expiration Time” and “Expiration Date” pages (see NASDAQ website)
– Cboe Exchange — “Hours & Holidays” and product pages, including “S&P 500 Index Options”
– CME Group — “Understanding Listings and Expirations” (product-specific explanations)
If you want, I can:
– Look up the exact broker cutoff times for a specific brokerage you use, or
– Produce a one-week expiration checklist customized to the specific contracts you hold (index vs. equity vs. futures). Which would you prefer?