Options Glossary

Glossary: Expiration

Last Updated: May 11, 2015



What Does Expiration Mean in Options Trading?

'Expiration' is the date that the option contract expires.  All options contracts are valid for a fixed duration.  This is the lifespan of the option, where the buyer has the right the exercise the option and the seller has the obligation to fulfill the terms of the option.
The difference between American Style Options and European Style Options is that with American Style Options the owner can exercise his right, but not obligation to sell or buy (depending on if it's a put or call option) at any time up to the expiry date of the options contract. He can not exercise his right after expiration, however, with European Style Options, the owner must exercise on the day of expiry.
If we compare an option contract to insurance, the concept of expiration is a little easier to understand.  If you buy car insurance your policy will have an expiration date.  I.e., you must file a claim against your policy within the effective dates of the contract. As the insurer, you are only liable for claims during and up to the expiration date of the policy.
Different options contract durations have different parameters.  E.g., the longer the duration of the contract, the higher the premium will be to insure the risk.
Don't worry, Brutus will look at durations when evaluating options contracts - from weeks to months, to ensure he finds the best mix of parameters against your trading criteria.

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