The final settlement time varies by product, just like the expiration date. For example, when the outright futures contract settlement price is decided at 2:30 p.m. ET, natural gas options on futures cease trading. The Monday weekly options on futures for the E-mini S&P 500, on the other hand, expire at 4 p.m. ET.
When do option contracts expire?
- When an options contract reaches its expiration date, it becomes void and no longer has any value. The third Friday of the month is usually the last day of trading. The actual expiration time is Saturday at 11:59 a.m. EST the following week.
- When using a broker, the expiration time and dates might vary, as can the exchange on which the option is exchanged.
- When an option isn’t exercised as the expiration date approaches, it’s crucial to keep an eye on after-hours trading for a variety of reasons.
When do the options on NQ futures expire?
They will expire at 4 p.m. Eastern Time, based on the E-mini Nasdaq-100 future’s special fixing price for that day. The special fixing price is calculated using the E-mini futures’ weighted average trading price in the final 30 seconds of trade before the cash equity markets close.
Do options end at 4 p.m.?
Early assignment is most likely when the options are in-the-money (ITM), although it is possible that an option that is out-of-the-money (OTM) could be assigned at expiration under specific circumstances.
The current price of XYZ stock is $80 per share. When XYZ was trading at $92 per share two weeks ago, you placed on a credit spread. You bought 1 90 put for $2.50 and wrote 1 95 put for $5, giving you a credit of $2.50, or $250. Both options are now in the money, and the 95 put you wrote is assigned to you, and you exercise your 90 Put to counterbalance that assignment. You’ve lost your job, but you’ve also incurred a number of costs and may face some price risk before it’s all said and done.
Dividend Considerations
If you’re writing a call option in a spread on a stock that pays a dividend and the call option is in the money and/or has less extrinsic (time value) than the dividend payout, you’re taking on additional assignment risk.
This is a good opportunity to remind you that an options trade might have a lot of moving parts.
If you’re writing call options on a stock that pays a dividend, you should be aware of numerous things, including the dividend amount, the ex-dividend date, and the influence the forthcoming dividend payment may have on the stock’s price and the option premium.
You will be responsible for paying the dividend if you are assigned short stock soon before the ex-dividend date.
As a result, it might not be worth the work in this case. Any short in-the-money call positions should be closed or rolled forward well before the ex-dividend date.
Exercise at Expiration
When an option expires, the buyer retains possession and can exercise it at any moment before the Friday expiration cutoff time. Even if your options are out-of-the-money, if you hold short options, calls, or puts through and through expiration, unpleasant things can happen that are beyond of your control.
Keep in mind that most stock options stop trading when the regular stock market session closes at 4:00 p.m. ET, but many stocks continue to trade after hours until 8:00 p.m. ET, even on expiration Friday, which may affect the intrinsic value and possibly the decision of a call or put option buyer to exercise an option, as exercise can take place hours after the market has closed on Friday.
At expiration, an example of a Credit Spread after-hours assignment an out-of-the-money exercise
It’s Friday, and the markets have just closed. The current price of XYZ stock is $96 per share. When XYZ was trading at $92 per share two weeks ago, you placed on a credit spread. You bought one 90 put for $2.50 and wrote one 95 put for $5, giving you a credit of $2.50, or $250. You expect to get your $250 profit when both options expire out-of-the-money. However, the buyer of a 95 put exercises for some unknown reason, and you are chosen and assigned the long stock. Your covering 90 put option has expired, leaving your new long stock exposed to the market. The CEO of XYZ gets arrested for embezzlement over the weekend, and XYZ starts Monday at $50.00 per share, resulting in an unrealized loss of $4,000 in your account on that one-contract position.
Do Not Exercise (DNE)
A buyer of an option may direct his broker to: “Regardless of the option’s in-the-money value, “Do Not Exercise” at expiration. Why would someone give that much money away? When an option is somewhat out-of-the-money at the closing of the session on the expiration date, and there is a probability the option value will rise in the aftermarket session, this is what happens. If the option buyer does not have enough money in their account to take delivery of the exercised stock, “Do Not Exercise” instructions are frequently sent to the broker.
The contract is void, therefore “Do Not Exercise” can be a problem for an option writer.
A random option seller of that contract is allocated to the voided contract.
It’s Friday, and the markets have just closed. The current price of XYZ stock is $89.00 per share. When XYZ was trading at $92 per share two weeks ago, you placed on a credit spread. You bought one 90 put for $2.50 and wrote one 95 put for $5, giving you a credit of $2.50, or $250. Both options are now in the money, and the trade will cost you $250. However, a put buyer someplace does not have sufficient funds in his account to execute his put option, so he contacts his broker before the 5:30 p.m. deadline on expiration day “He will lose the $600 ($6 per share $95-$89) if he does not exercise. The OCC appoints an options writer to compensate for the non-exercised put, and the contract is canceled. However, you were banking on that short 95 put contract to balance your long 90 put, but you no longer have a short put contract in your account, and you are now auto-exercised on the long 90 put and must short the 100 shares of XYZ stock, exposing you to the XYZ price action open on Monday.
Will I Get Assigned?
It’s impossible to predict when you’ll be assigned. You have the choice to receive (and pay for) or deliver (and be paid for) shares of stock once you write an American-style option (put or call). You may be assigned on a short option position if the underlying shares are halted for trade or if they are the subject of a buyout or takeover.
The Options Clearing Corporation (OCC) uses a random technique to allocate exercise notices to clearing member accounts maintained with OCC to ensure fairness in the distribution of option assignments. The designated business must then allocate notices to its client’s accounts that are short the options using an exchange-approved manner (typically a random process or the first-in, first-out technique).
Conclusion
Even when used as part of a limited risk type spread, writing calls and puts can be high-risk tactics that are not suitable for every trader or account.
And, even though the goal of writing options is to have them expire worthless, you must be mindful of all the factors that could alter your position as it approaches expiration. There are many moving parts here, and you must be aware of them all.
So, given all of the elements and hazards, there may be instances when closing a short options position before to expiration, in order to prevent assignment risk, is the best decision. It may cost you some income, but it will alleviate your tension and avoid any additional danger or the possibility of an unanticipated loss.
How late can you exercise your options?
Option holders with expiring options have until 5:30 p.m. Eastern Time (ET) on the day of expiration to make a final exercise decision on whether to exercise or not exercise the option, according to FINRA. 1 Members may set an earlier time for accepting exercise instructions for customer and non-customer accounts, but not after 5:30 p.m. ET. 2 Members should inform customers about the deadline for exercising expiring options.
Special rules apply to the execution of expiring standardized equity options, according to FINRA. In most cases, in-the-money standardized equity options that are about to expire will be automatically exercised. 3 The cost of any exercise connected with call option positions will be incurred at that time. Option holders who want to exercise or not exercise expiring standardized equity options must either do nothing and let exercise determinations apply, or file a “Contrary Exercise Advice.” An option holder can use a “Contrary Exercise Advice” to either (1) not exercise an option position that would otherwise be exercised, or (2) exercise a standardized equity option position that would otherwise be exercised. An “Advice Cancel” form can be used to cancel a Contrary Exercise Advice.
- Call (212) 457-5313 or contact Gene DeMaio, Executive Vice President, Options Regulation and Trading & Execution; or
Is it possible to trade options after business hours?
Options market hours are 9:30 a.m. to 4:00 p.m. Eastern Standard Time, in case you didn’t know. Because the option’s value is derived from the price of the underlying stock, there’s no need for options to continue trading once the underlying stock has stopped trading. As a result, there is no option trading after hours.
When futures options expire, what happens?
Some futures options expire to cash, while others expire to the underlying futures contract, depending on the expiration cycle. When futures options and futures expire in the same month, the options and futures will be converted to cash. The options settle to the future if the options and the future expire in different months.
Are futures options worthless when they expire?
Futures vary from options in that even a losing futures contract (loss position) retains its value after expiration. An oil contract, for example, represents barrels of oil. If a trader retains a contract until it expires, it is because they want to buy (they bought the contract) or sell (they sold the contract) the oil represented by the contract. As a result, the futures contract does not expire worthless, and the parties are obligated to each other to fulfill their contractual obligations. Those who do not wish to be held responsible for the contract’s fulfillment must roll or close their positions before the last trading day.
Do options expire when they open or when they close?
The vast majority of futures options expire at the end of the trading day, but there are a few notable exceptions. Options with an a.m. expiration are usually written on a future contract with the same expiration date and time as the current contract.