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Expiration date is the day on which an options contract is no longer
valid and, therefore, ceases to exist.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