The Day of Expiration for Stock Options
A stock option is a contract giving the buyer the right to buy or sell a specific stock at a particular price called the strike price. The buyer must exercise the option during a set period and either buy or sell by the day of expiration for stock options. Employees of publicly-traded companies are often given stock options as part of their compensation packages. If stock share prices for the company increase, stock options can be extremely profitable.
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Expiration Date
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The day of expiration for stock options listed (traded on exchanges) in the U.S., is the third Friday of the given expiration month or Thursday if Friday is a holiday. Stock options vary in their expiration months, with the particular options series determining the month of expiration. Trading for options stops on the third Friday and the options contract expires on the Saturday following the third Friday.
Expiration Cycles
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There are three expiration cycles to which all listed stock options belong. Options in the first cycle (JAJO) have the first months in each new quarter as their expiration months-January, April, June and October. The second cycle's (FMAN) options expire in the months of February, May, August and November. Expiration months for the third cycle (MJSD) include March, July, September and December. Every stock that has an option available has a minimum of four expiration months to choose from, which becomes important when you predict how long it will take for a particular stock to go up or fall, as you decide when to exercise your options.
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Call Options
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The day of expiration for stock options is significant in relation to the type of option you buy. A "call" option is a stock option that gives you the right, but not the obligation to buy the specified number of stock shares at the agreed-upon strike price, by or before the designated expiration date. For example, you buy a call option for a particular stock at a strike price of $15 per share for 100 shares, with an expiration date two months away. You would have the right to buy those 100 shares any time prior to the date of expiration, for $15 per share, even if the stock price in the open market was up to $23 per share. Exercising your option would be profitable, since you are getting 100 stock shares that have grown in value, but paying $8 less per share.
Put Options
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A put option involves the right to sell stock shares at the strike price, by or before the date of expiration. If you have a put option to sell 100 shares of stock at a strike price of $36 per share, any time before the day of expiration for stock options in that expiration cycle, you can exercise your option to sell. If the underlying stock for your option drops on the open market to $28 per share, you can still sell your 100 shares at the $36 per share price. That translates to an $800 profit.
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