Definition
Expiration is the date on which an options contract terminates. After it, the contract no longer trades and its holder can no longer exercise. The expiration date is fixed when the contract is listed, so every option carries a built-in countdown.
For US equity options, the standard monthly expiration falls on the third Friday of the month, though many underlyings now also list weekly and other shorter cycles.
Why it matters
How it works
As the expiration date nears, the time-value component of an option's premium shrinks toward zero, leaving only intrinsic value. This decay is not linear — it steepens in the last weeks of the contract's life, which is why short-dated options behave very differently from long-dated ones.
At expiration the outcome is binary. An out-of-the-money option simply lapses, and the holder loses the premium paid. An in-the-money option is settled — usually through automatic exercise by the clearinghouse — converting the contract into shares or a cash payment at the strike price. Traders who do not want a resulting stock position must close or roll the contract before this point.