Expiration

Many financial contracts have an end date. Futures, options, forwards and prediction markets all expire: on a set day, the contract stops trading and is settled, either by delivering the underlying asset or by paying cash. Shares and spot currencies do not expire, which is one of the biggest practical differences between owning an asset and holding a derivative on it.

What happens at expiration#

Futures expiration#

Futures are listed for specific months, such as March, June, September and December for stock indexes. Each contract has a last trading day, and physically settled contracts also have a first notice day, after which holders of long positions can be assigned delivery. See Contract Months and Expiration and First Notice Day and Last Trading Day.

Most traders never reach expiry. They close their position or roll it into the next contract month before the deadline. Volume shifts from the expiring contract to the next one in the days before, so liquidity follows the roll. See Rollover and Rolling Futures Contracts.

Options expiration#

Each option has an expiration date. At expiry:

• An option that is in the money, meaning it has intrinsic value, is usually exercised. Under the US clearing system's standard procedure, equity options in the money by at least $0.01 at expiration are exercised automatically unless the holder instructs otherwise.
• An option that is out of the money expires worthless.
• Sellers of in the money options are assigned and must buy or sell the underlying shares.

US stock options traditionally expire on the third Friday of the month, but weekly options and, for some indexes and ETFs, daily expiries now exist. See Option Expiration Dates.

Time decay into expiration#

An option's time value shrinks as expiration approaches, and the decay speeds up in the final weeks. Buyers of options fight this decay; sellers benefit from it. See Theta.

Expiration effects on prices#

Large expirations can affect the underlying market:

• Pinning: stocks sometimes gravitate towards strike prices with large open interest near expiry, as dealers adjust hedges.
• Volatility around expiry: hedging flows can increase or dampen moves in the final hours.
• Quarterly expirations: when stock index futures, index options and stock options expire on the same day each quarter, volume spikes. This is often called Options Expiration and Triple Witching.

Prediction market expiration#

Prediction markets expire when their question is answered. Short crypto rounds, such as Polymarket's 5 and 15 minute Bitcoin up or down markets, expire every few minutes on a fixed schedule, with the outcome decided by comparing the final price with the round's starting price. See Up or Down Markets Explained and Price to Beat and How Rounds Settle.

Managing expiration#

1. Know the dates for every contract you hold, including last trading day and any notice dates.
2. Decide in advance whether you will close, roll or let a position expire.
3. Check your broker's rules on automatic exercise, early closing and delivery.
4. Have enough cash if an option may be exercised or assigned.
5. Avoid surprise assignment on short options near expiry, especially around dividends.

Frequently asked questions#

What happens if I hold an option until expiration?#

If it is in the money, it is usually exercised automatically, giving you shares or a cash payment. If it is out of the money, it expires worthless.

Do stocks expire?#

No. Shares have no expiration date. Only contracts such as options, futures and prediction market shares expire.

What happens to futures at expiration?#

They stop trading and settle in cash or by delivery of the underlying asset. Most traders close or roll positions before that happens.

Sources#

• Wikipedia, Expiration (options)
• U.S. Securities and Exchange Commission, Options