Expiration Time

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Understanding Expiration Time

Expiration time is the exact moment when a derivative—such as an options or futures contract—ceases to be valid and must be settled. It is more specific than the expiration date and can differ from the last time the contract can be traded. At expiration:
* In-the-money (ITM) options retain value and are settled based on the applicable settlement price.
* Out-of-the-money (OTM) options expire worthless.

Key takeaways

  • Expiration time specifies when contracts stop being effective; expiration date is the day associated with that window.
  • Listed equity options in the U.S. commonly have their last trading day on the third Friday of the expiration month; the formal expiration is effectively the following day (subject to holiday adjustments).
  • Exercise/settlement deadlines and the recorded final price vary by exchange and product—check both the exchange rules and your broker’s procedures.
  • After-hours moves in the underlying can change an option’s ITM/OTM status between last trade and official settlement, creating risk if positions are left open.

Expiration date vs. expiration time vs. last trade

  • Expiration date: the calendar day tied to a contract’s lifecycle.
  • Expiration time: the precise time on that date when the contract’s status is finalized and settlement occurs.
  • Last trading time: the final hour or minute when the contract can be bought or sold. This often occurs earlier than the official expiration time.

Example procedural points commonly used in U.S. equity options:
* The last trading day is usually the third Friday of the expiration month. If that Friday is a holiday, the last trading day moves to the preceding Thursday.
* Brokers typically require exercise instructions by an internal cutoff (often the evening before expiration) so they can notify the exchange by the official expiration time.
* Some exchanges impose different trading cutoffs—for example, certain expiring options are restricted to earlier closings (a referenced example is a 3:00 p.m. Central Time cutoff for some CBOE products).

How expiration mechanics affect traders

  • Automatic exercise: Many brokers/exchanges automatically exercise options that are in the money at expiration, but thresholds and policies differ. Relying on automatic exercise can be risky if after-hours price moves push the underlying OTM before settlement.
  • Settlement price: For many index options, the settlement value is calculated from the last reported sales price of each component stock on the last trading day—so closing prints matter.
  • Offsetting positions: Most options never reach expiration because traders close or offset positions beforehand. Leaving positions open invites execution and assignment risks at settlement.

Case study: SPXW weekly options (example mechanics)

SPXW Weeklys are weekly-expiring options on the S&P 500 index with afternoon settlement:
* Settlement value is calculated using the last reported sales prices of the index’s component stocks on the final trading day.
* Trading in expiring SPXW Weeklys typically closes earlier in the afternoon (an example cutoff is 3:00 p.m. Central Time), while other SPXW series may trade slightly longer (e.g., until 3:15 p.m. CT). These times reflect exchange-specified closing procedures for index weeklies and can differ from equity option hours.

Practical tips for traders

  • Confirm deadlines with both the exchange listing the contract and your broker—exercise-notice cutoffs and automatic-exercise thresholds vary.
  • Don’t assume last trade equals final settlement; watch the underlying’s closing prints and any after-hours activity that could affect settlement value.
  • If you don’t want to be exercised or assigned, close positions well before the last trading hour rather than waiting until the expiration window.
  • Understand product-specific settlement rules (e.g., end-of-day or opening-based settlement for different index options).

Summary

Expiration time is the precise moment contracts stop being valid and settlement occurs. Because last trading hours, broker procedures, and exchange settlement rules can differ, traders should verify deadlines and settlement methods for each product and consider closing or rolling positions before expiration to avoid unexpected outcomes.