Navigating expiration

Trading options requires more than just a grasp on the mechanics of placing trades; it requires knowledge on what can happen to an option throughout its entire lifetime. We’ve already taken a look at some basics; below, we will dive deeper into option expiration concepts.

Please note that the information provided below is not exhaustive and that additional risks beyond those discussed below may exist.

In addition to the expiration date, options have specific times that they cease trading as well as when they officially expire. Typically, options in the United States expire at the market close on Friday, at 4:00 EST.

Standard Monthly options typically expire the third Friday of the month. If the third Friday of the month is a holiday, expiration will be the third Thursday of the month. Be aware that there are some products that expire to cash the morning of expiration, such as the SPX. For monthly expirations, SPX settlement occurs Friday morning, thus the last day to trade is the third Thursday of the month.

Quarterly options have expiration dates that coincide with the last trading day of each calendar quarter: March, June, September, December.

Like Monthly options, Weekly options typically expire on Friday at 4:00 EST. There are products that have weekly expiration on Mondays, Wednesdays or Fridays. Daily options are a more recent product introduction, known zero-days-to-expiration options (0DTE). These option contracts have the lifespan of a single day, and like standard monthly and weekly products, expire at 4:00 EST.

Please contact E*TRADE Support if you are unsure which expiration day of the week is applicable to your position.

Remember, the buyer or owner of an option has the right, but not the obligation, to exercise their option on or before expiration.¹ What specific exercise rights do buyers have?

• The buyer of a call option has the right to buy the underlying security at the strike price
• The buyer of a put option has right to sell the underlying security at the strike price

On the flip side, the seller of an option may be assigned, at any point before or on expiration.² Option sellers do not have any control over assignments, and once assignment occurs, they are required to do the following:

• The seller of a call option is obligated to sell the underlying security at the strike price
• The seller of a put option is obligated to buy the underlying security at the strike price

In options trading, the terms in-the-money (ITM) and out-of the-money (OTM) describe whether or not an option has intrinsic value, which is the option’s value if it were exercised immediately.

An option that expires at least $0.01 ITM is typically automatically exercised by The Options Clearing Corporation (OCC) and converted into 100 long or short shares of the underlying security at the strike price. An option that expires OTM is typically considered worthless, not exercised, and disappears from the account.³

How to you know if your option is ITM or OTM, and what is the typical outcome for standard options held until expiration?  This depends on if you have a long or short, call or put position, and if the strike price is higher or lower than the underlying stock price.

Long call

• ITM when the underlying stock price is higher than the strike price. Position holder is obligated to purchase 100 shares of the underlying shares of stock at the strike price
• OTM when the underlying stock price is lower than the strike price. Position is typically worthless and removed from the account

Short call

• ITM when the underlying stock price is higher than the strike price. Position holder is assigned to sell 100 shares of the underlying stock at the strike price
• OTM when the underlying stock price is lower than the strike price. Position is typically worthless and removed from the account

Long put

• OTM when the underlying stock price is higher than the strike price. Position is typically worthless and removed from the account
• ITM when the underlying stock price is lower than the strike price. Position holder is obligated to sell 100 shares of the underlying stock at the strike price

Short put

• OTM when the underlying stock price is higher than strike price. Position is typically worthless and removed from the account
• ITM when the underlying stock price is lower than the strike price. Position holder is assigned to purchase 100 shares of the underlying stock at the strike price

The owner of an ITM expiring option may choose to not have their position exercised. In this case, a Do Not Exercise (DNE) request must be submit to 800-387-2331 no later than 5:30 EST.

Expiring options that close in-the-money by less than $0.01 may not automatically be exercised. These options may still be exercised, but you are required to provide an exercise request before 5:30 EST.

Spread positions can have unique expiration risks. Like single-leg options, the outcome for an expiring spread position depends on if they expire ITM or OTM, but given spreads have multiple legs, there is the potential for the position to expire fully ITM, partially ITM, or fully OTM.

Any spread that has a leg(s) that expire in-the-money with the other leg(s) expire out-of-the-money presents open risk as the legs are no longer hedged. You are responsible for managing this risk and for risks associated with any unhedged spread legs that expire in-the-money. If you do not want to exercise an expiring in-the-money leg of a spread, you must notify us with a DNE request by 5:30 EST. Any instructions submitted to E*TRADE by telephone are processed on a best-efforts basis. If you fail to provide sufficient time for an E*TRADE broker to assist, your expiring in-the-money leg of a spread may still be exercised.

If you would like assistance understanding how expiration may impact an existing spread in your portfolio and what action you may be facing, please contact E*TRADE Support to discuss.

Fully in-the-money spread

• Spreads that expire with all legs completely ITM by $0.01 or more will automatically be exercised/assigned.  The short leg will be assigned, and the long leg will be exercised

Partially in-the-money spread

• If only the short leg of a spread is ITM and the long is OTM, the long leg will expire worthless and the short will be assigned. This means you would be obligated to accept the assignment to either buy or sell the underlying stock at the strike price (depending on the type of option)
• Ways to avoid this outcome would include to close the spread just prior to expiration, or roll the position to an alternate strike or expiration date

Fully out-of-the-money spread

• Typically, a spread that expires fully OTM will expire worthless and be removed from the account. However, note that the short options position within a spread are still subject to dividend/assignment risk, despite it expiring OTM

Dividend risk is the potential for a short call position to be assigned before the stock’s ex-dividend date. If an option is ITM and the dividend date is approaching, a call owner may opt to exercise early in order to receive the dividend payment. If this were to occur, the owner of the short call would be responsible for delivering shares (for stocks, a standard options contract is worth 100 shares) at the option’s strike price, to the owner of the call.

Ways to avoid dividend risk include carefully monitoring for positions approaching ex-dividend dates, close out of a short position with dividend risk prior to the ex-dividend date, or roll to a later expiration date or alternate strike price. Using E*TRADE platforms, you can customize your Positions list to include Dividend, Dividend Pay Date, and Ex-Div Date as dedicated columns in order to remain dialed into when this event will occur. Similarly, you can add Days to Expiration, and Dividend Pay Date columns for a broader view of impactful event occurrences.  

A position’s risk profile can change as a result of option exercise/assignment. This may trigger a change in margin requirements, place the account in a margin call, or potentially both.⁴ For detailed information on expiration and assignment risk on option strategies that contain a short position, please refer to our article "Understanding assignment risk".

Options are either cash-settled or physically delivered. Most standard equity and ETF⁵ options are physically settled upon exercise or assignment. At the expiration of a physically settled product, in-the-money options result in the exchange of shares on the underlying security.

Note that there some products that do not have underlying shares (such as certain indices) and as a result, ITM options will be cash-settled at expiration. This means the settlement results in a cash payment as opposed to an exchange of shares. The following formula is used to determine cash settlement:

(Settlement price of the according index – Strike price of the option) x Contract multiplier

For example, you hold a standard monthly call option with a strike price of 5000 on a cash-settled index, which settles at 5100 at expiration. Each option on this index controls 100 times the index value, meaning the contract multiplier is $100.

(5100 – 5000) x 100 = $10,000

Settlement typically occurs the next business day after expiration or exercise. For any questions on when a specific position will be settled, please contact 800-387-2331.

You should fully understand the risks of trading options before you trade. For more information, please read the Characteristics and Risks of Standardized Options. If you have any questions about the exercise or expiration process, please contact E*TRADE Support.

Article Footnotes

¹ For American option types, exercise can occur at any point prior to expiration; European option types can be exercised only on the expiration date. If you wish to exercise an option contract prior to the last business day before expiration, you must submit an exercise request E*TRADE by 5:30 PM EST on the Expiration Day. Failure to do so will result in the contracts not being exercised on that business day.

² E*TRADE processes the assignments made by OCC to customers with short options positions on a random basis. E*TRADE will process assignments and exercises in your account on the first eligible day following expiration.

³ While out-of-the-money options typically will expire worthless and are removed from the account, there may be scenarios resulting in assignment of an OTM option. If you hold short options positions which appear to be OTM immediately at expiration, there is no guarantee that you will not be assigned. For example, the holder of a long options position may choose to exercise, even if the option expired OTM at the close of the regular trading session. If the underlying price changes during the extended hours session, it may be economically beneficial to exercise OTM options.

⁴ Trading on margin involves risk, including the possible loss of more money than you have deposited. In addition, Morgan Stanley Smith Barney LLC can force the sale of any securities in your account without contacting you if your equity falls below required levels, and you are not entitled to an extension of time in the event of a margin call. For more information, please read the risks of trading on margin at etrade.com/margin.

⁵ An investment in an exchange-traded fund involves risks similar to those of investing in a broadly based portfolio of equity securities traded on exchange in the relevant securities market, such as market fluctuations caused by such factors as economic and political developments, changes in interest rates and perceived trends in stock prices. The investment return and principal value of ETF investments will fluctuate, so that an investor's ETF shares, if or when sold, may be worth more or less than the original cost.

CRC# 4894448 11/2025