How Stock Options Expire

MRR and PLR Articles Pack

Below is a MRR and PLR article in category Finance -> subcategory Wealth Building.

AI Generated Image

Understanding How Stock Options Expire


Overview

Stock options follow a predictable expiration cycle. Each stock with listed options adheres to one of three cycles that remain constant:

1. January, April, July, October (JAJO)
2. February, May, August, November (FMAN)
3. March, June, September, December (MJSD)

Beyond these cycles, options can also expire in the upcoming month.

Expiration Timing

Options expire on the third Saturday of the expiration month. To close a position, you need to trade by the last business day before this, typically the preceding Friday. Be mindful of busy Fridays which may complicate last-minute orders. Always ensure your broker can execute your trade on time.

Types of Last-Minute Orders

1. Buy to Close a Short Position: This involves buying back the option you previously sold.
2. Sell to Close a Long Position: This means selling an option you own to close your position.
3. Exercise Order: Involves buying or selling 100 shares per option.

If a last-minute exercise occurs against your short position, you'll be informed and will need to deliver funds or accept and pay for shares.

Timing Example

If you purchase a call set to expire in July, it will expire on the third Saturday of that month. To benefit, you must sell or exercise your call by the close of business on the Friday before. Missing this deadline means the option expires worthless.

To avoid timing issues, place your orders well in advance with instructions for execution by Friday's end. Confirm with your brokerage to ensure protection if they fail to execute the order.

Opening and Closing Trades

Each option trade requires four specifics: striking price, expiration month, call or put type, and the underlying stock. Any change means a new option is involved.

Opening a Trade

- Buying an Option: Known as an opening purchase.
- Selling an Option: Known as an opening sale.

Closing a Trade

- Closing Sale: Selling an option you own.
- Exercise Your Option: Choose to exercise the option as per its terms.

Failing to act means the option will expire.

Risk of Exercise Example

If you sold a call, creating a short position, you have options: wait for expiration, or close the position by purchasing it back. If the stock price exceeds the call's strike price, you risk the call being exercised, requiring you to deliver 100 shares at that price.

By understanding these basics, you can effectively navigate the timing and strategy involved with stock options.

You can find the original non-AI version of this article here: How Stock Options Expire.

You can browse and read all the articles for free. If you want to use them and get PLR and MRR rights, you need to buy the pack. Learn more about this pack of over 100 000 MRR and PLR articles.

“MRR and PLR Article Pack Is Ready For You To Have Your Very Own Article Selling Business. All articles in this pack come with MRR (Master Resale Rights) and PLR (Private Label Rights). Learn more about this pack of over 100 000 MRR and PLR articles.”