Every option has an expiry date. After that date the contract no longer exists. What it is worth at expiry depends only on where the underlying settles compared with the strike.
Weekly vs monthly expiries
Many index options trade with both weekly and monthly expiries, while most stock options have monthly expiries only. Weekly options are cheaper because they have less time value, but they also lose that value much faster.
Exchanges and regulators change expiry days and the list of contracts with weekly expiries from time to time, so always check the current calendar on your exchange’s website before you trade.
What happens at expiry
- OTM options expire worthless.
- ITM options are settled. Index options are cash-settled, and in many markets stock options are physically settled, which means shares change hands.
- Physical settlement can require a large amount of cash or shares. Close or roll positions before expiry if you are not ready for it.
Expiry-day risk
On the last day, gamma is very high. A small move in the underlying can turn a nearly worthless option into a valuable one, or the reverse. Trade smaller on expiry day, or stay out entirely while you are learning.
This article is for education only and is not financial advice. Options involve risk and are not suitable for every investor.