Definition: Stock options have an expiration date. The expiration date is determined when the call/put option is written. Once the option expires, the buyer of the option no longer has the option of exercising their option. At Tradezy, we look at DTE (days till expiration) during order entry for our option strategies.
The expiration date for stock options in the United States is normally the third Friday of the contract month, which is the month when the contract expires. If that Friday falls on a holiday, the expiration date is on the Thursday immediately before the third Friday.
With American styled options, the buyer can exercise their option if it is ITM before expiration. This means that if you have short options that are ITM, there is an assignment risk (chance of option be converted to shares).
If an option is ITM at expiration, it will be exercised. Depending on the option position, the amount of shares assigned will differ (see below).
- 1 Long Call converts to 100 long shares at strike price
- 1 Long Put converts to 100 short shares at strike price
- 1 Short Call converts to 100 short shares at strike price
- 1 Short Put converts to 100 long shares at strike price
At Tradezy, we prefer to close out positions before expiration. We do this to avoid assignment fees that come along with the conversion of options to shares and larger capital requirements for buying/shorting shares of stock.