Calculation and mechanics
Standardised US stock and ETF options have classic monthly expirations on the third Friday of the month. Many liquid underlyings add weekly expirations and further expiration days.
Options that are in the money at expiration are, for standardised US stock and ETF options, generally exercised under the Exercise-by-Exception rules unless contrary instructions are given. Options out of the money normally expire worthless. With prices close to the strike, the actual outcome can still deviate from a simple look at the closing price.
For the seller of an option that expires worthless, the remaining option value becomes zero. When a short option is exercised, assignment follows.
Distinction
Expiration and DTE belong together: one is the date, the other the distance to it in calendar days. The expiration is also the axis on which the IV term structure shows the implied volatility of different terms.
The ex-dividend date is to be distinguished from the expiration. It belongs to the underlying and can influence the risk of early assignment, especially for American-style short calls.
Sources
Related terms
- DTE (Days to Expiry)
- Assignment (Option assignment)
- Ex-Dividend Date (Ex-div)
- IV Term Structure (Volatility Term Structure)
- Roll and Roll Efficiency (Rolling)
All market and analytical information is provided for educational and analytical purposes only and does not constitute investment advice or a trading recommendation.