Options Expiration and Options Strike Price

Description: Options Trading, Strike Price, Options Expiration, Options Strike, Call Options, Put Options, QQQQ, SPY

Options Expiration

Expiration date is the day on which an options  contract is no longer valid and, therefore, ceases to exist.

Options expiration is one of the most important parameters of the options. All options have expiration date at with they expire. That is the main difference between options and stock. The options are not traded after they expired. A trader who owns an option has the right to exercise this option any time before or at the expiration date (American style options) but not after.

The expiration date for all listed options in the U.S. is the third Friday of the expiration month (except when it falls on a holiday, in which case it is on Thursday). A trader who has in-the money options on their expiration date has to make a decision whether to exercise them or not. Out-of-the-money options on the expiry date are worthless.

Basically you have to remember that at the end of expiration date:

• all call options (out-of-the-money) whose strike prices are above the price of the underlying stock or index will expire worthless;
•  all put options (out-of-the-money) whose strike prices are below the price of the underlying stock or index will expire worthless;
•  all call options (in-the-money) whose strike prices are below the price of the underlying stock or index could be exercised;
•  all put options (in-the-money) whose strike prices are above the price of the underlying stock or index could be exercised.

The expiration date is the main factor that affects the price of the options. The closer it is to the expiration the cheaper the options would be. For instance, a trader who decided to buy SPY call options with January expiration and $140 strike price would pay less if the same trader decided to by the same strike ($140) SPY call options but with February expiration.

An option trader always has to remember that time decay affect options price. Even if the underlying stock stays at the same price the options on this stock would become cheaper with time.

Option lose it's value with time!

For instance, you bought QQQQ calls for $2 per contacts when QQQQ market price was $45 per share. Even if in a month QQQQ is back at $45 level the same QQQQ calls may cost $1 per contract now.

Strike Price

The strike price is the price at which a option contract can be exercised.

The strike prices are fixed in the contract. For call options, the strike price is the price at which the underlying stock could be bought (up to the expiration date) and for put options the strike price is the price at which underlying stock could be sold.

The strike price is one of the most important factors in the options pricing. At the expiration date the difference between the underlying stock current market price and the option's strike price represents the amount of profit per share gained upon the exercise. Of course this is true for options that are in the money.

 

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