Understanding expiration: things to keep in mind

Expiration is more than just a date on a calendar; it’s a critical event that can impact your positions, account value, and risk exposure. By understanding how different contracts handle expiration and taking proactive steps to manage your trades, you can help minimize the potential for surprises and trade with greater confidence. Below, we will take a look at some of the key concepts of options expiration.

Please note that the information provided here is not exhaustive and that additional risks beyond those discussed may exist. You should fully understand the risks of trading options before you trade. For more information, please read Expiration Process and Risks and the Characteristics and Risks of Standardized Options.

Each option has a pre-determined lifespan, with a date that it ceases to exist. That date is referred to as “expiration.” Standard options typically expire the third Friday of the month, and some products such as zero days to expiration (0DTE), weekly, and quarterly options have different expiration schedules.

It is crucial to be aware of when all your positions are set to expire, including the calendar date and time, so you have adequate time to prepare for the event. Consider customizing your Positions list to include a dedicated column indicating how much time is remaining on a position prior to its expiration date. Power E*TRADE and Power E*TRADE Pro platforms will label the column as Days Left; E*TRADE platforms states Days to Expiration.

The expiration outcome of an option depends on if it is in-the-money (ITM), at-the-money (ATM) or out-of-the-money (OTM), which are determined by the relationship between the option’s strike price and the underlying security’s market price. This relationship is referred to as “moneyness.”

• ITM (by $0.01 or more) options: typically automatically exercised, and the buyer will receive (or deliver) the underlying asset.¹ Short options are subject to assignment²
• ATM options: typically have no intrinsic value and will not be automatically exercised
• OTM options: typically expire worthless and are removed from the account³

Just as it is vital to know the expiration date of all your positions, it is equally as important to be aware of if they are American-style or European-style. This distinction can impact your trading strategy, risk management approach, and potential for early assignment.

• American-style options: can be exercised anytime before expiration. Standard U.S. equity options (meaning options on single name stocks) are American-style. Short options are subject to assignment at any time
• European-style options: can be exercised only on the expiration date itself. Most options on stock indices, such as the SPX, are European-style. Short options may only be assigned on the expiration date

Recall that the buyer of an option has the right (but not the obligation) to exercise the option anytime before, or on the day of expiration. The specific rights an option owner has are dependent on if the position is a call or a put.⁴

• Call: the owner has the right, but not the obligation, to buy shares of the underlying asset at the option’s strike price
• Put: the owner has the right, but not the obligation, to sell shares of the underlying asset at the option’s strike price

The seller of an option may be assigned at any time if the owner of the option chooses to exercise. And remember, the seller of an option has zero control over assignment, or when it occurs. Once the owner of an option chooses to exercise their right, the seller is obligated to fulfill the terms of the call or put contract⁵

• Call: the seller is obligated to deliver shares of the underlying asset at the option’s strike price if the owner exercises the option
• Put: the seller is obligated to purchase shares of the underlying asset at the option’s strike price if the owner exercises the option

If an option buyer has a position that is expiring ITM, they have the ability to prevent the automatic exercise of that position through a request called Do Not Exercise (DNE). This is a binding instruction given directly to the Broker, and only applies to long positions. A DNE request cannot be used to prevent assignment on short options.

To submit a DNE request, you must call 800-387-2331 no later than 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 options may still be exercised.

For a more in-depth look at potential risks leading into and on an expiration, please reference our article Options on Expiration Day.

Options settlement is what occurs after an option is exercised or expires, and is the final step in the option’s lifetime. During settlement, the option is either transferred to stock, or is removed from the account due to being worthless.

• Physically settled contracts: the underlying asset is delivered (or received) as opposed to the cash value. Standard equity options are physically-settled
• Cash settled contracts: result in a cash credit or debit deposited into the account. An example of a cash-settled product are index options such as the SPX

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 must understand if your positions are physically settled or settle to cash, as each can require different approaches to risk management.

Expiration can impact your margin requirements, especially if you are holding a short option position.⁶ As contracts near expiration, margin requirements may increase and your buying power may decrease, particularly if you’re exposed to early assignment or sudden market volatility.

If your option is exercised or assigned, and you do not own the stock (or have a short position on it) when this occurs, your account will get a new stock position.

• If you end up owning the stock, you’ll need enough cash already in the account to pay for the shares. If you do not have the required amount, you may be placed in a margin call which requires you to add money (or sell the stock) to meet the deficiency
• If you end up shorting the stock, you must have enough funds to meet the margin requirement

If an exercise or assignment on an uncovered short call or long put position results in your account having a short stock position, you could face significant risk. With no limit to how high the price of the underlying stock may go, there is no limit to how much your account could lose.

For further information on risks you may face when trading options, please review Expiration Process and Risk.

• Monitor your held symbols for events such as earnings, announcements, or dividend dates, and consider setting reminders for your positions’ expiration dates. Days Left and Ex-Div Date can be added as dedicated columns in Position list on E*TRADE platforms to facilitate easy tracking
• Monitor open positions closely in the days leading up to expiration.  Ignoring an expiring option may lead to unwanted positions, margin calls
• Waiting too long to close positions may lead to poor liquidity or wide bid/ask spreads
• Holding short options too close to expiration increases assignment risk, even if the position is only slightly in the money
• Consider closing or rolling your position to avoid last minute risks
• Contact E*TRADE Support for confirmation on exactly the expiration date and time for a given position if you would like official confirmation

Article Footnotes

¹ The Options Clearing Corporation (OCC) will automatically exercise any expiring options that close $0.01 in-the-money or more on Expiration Day. In-the-money is defined as the stock’s official OCC closing price being $0.01 HIGHER than the Strike Price for call options or $0.01 LOWER than the Strike Price for put options.

² Exercises and assignments are processed overnight, thus you will not know for certain if your account has been impacted until the next trading 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 If you wish to exercise an option contract prior to the last business day before expiration, you must enter an exercise request through the E*TRADE platform 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. This is especially critical if you intend to exercise call options on the business day prior to an ex-dividend date to own stock and be eligible to receive the dividend. Any requests 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 contacts may not be exercised on that business day.

⁵ 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.

⁶ Trading on margin is only for sophisticated investors with high risk tolerance. You may lose more than your initial investment. A decline in the value of securities that are purchased on margin may require you to deposit additional funds to your trading account. Morgan Stanley Smith Barney LLC can force the liquidation of any securities in your account without prior notice if your equity falls below required levels, and you are not entitled to an extension of time in the event of a margin call. Please read more information regarding trading on margin at etrade.com/margin

CRC# 4713810 09/2025