Can an option be exercised on the expiration date?

A:

The use of options has increased dramatically over the years as a way to profit from or hedge against the volatile movements of stock prices. Not only can options be traded with stock as the underlying asset, they are also traded on foreign currency, interest rates and various indexes.

There are two kinds of stock options, American and European. American options can be exercised any time up to and including the expiration date of the option. However, European options can only be exercised on the date of expiration. Expiration dates follow three cycles, January, February and March. The January cycle is comprised of the first month of each quarter (January, April, July and October); the February cycle consists of the second month of each quarter (February, May, August and November); and the March cycle consists of the final month of each quarter (March, June, September and December).

Beyond the difference between American and European options, there are also more specific terms regarding expiration. Because expiration dates are usually identified just by a month, a specific date is identified within the expiration month that is used as an exact deadline. This deadline, for both types of options, is the Saturday following the third Friday of the expiration month. An investor normally has until 4:30pm Central time on the third Friday of the month to instruct his or her broker to exercise an option. The brokers then have until 10:59pm the following day to file the paperwork necessary to execute the trade.

To learn more about options, see the Options Basics Tutorial, The Four Advantages Of Options and Trading A Stock Versus Stock Options Parts I and Part II.

RELATED FAQS

  1. What is the difference between arbitrage and hedging?

    Dive into two very important financial concepts: arbitrage and hedging. See how each of these strategies can play a role ...
  2. How do you trade put options on E*TRADE?

    Learn all about put option trading at E*TRADE. Explore margin accounts and become familiar with the different types of option ...
  3. How do you trade put options on Ameritrade?

    Learn about option trading with TD Ameritrade. Explore the different types of options and their possible impacts on the investors ...
  4. What is the difference between a short position and a short sale?

    Learn how short selling and short positioning are different, specifically in regards to the nature of the commodity being ...
RELATED TERMS
  1. Multibank Holding Company

    A company that owns or controls two or more banks. Mutlibank ...
  2. Short Put

    A type of strategy regarding a put option, which is a contract ...
  3. Wingspread

    To maximize potential returns for certain levels of risk (while ...
  4. Volatility Smile

    A u-shaped pattern that develops when an option’s implied volatility ...
  5. Nadex

    Nadex stands for the North American Derivatives Exchange, a regulated ...
  6. Exchange-Traded Binary Options

    Exchange-traded binary options, regulated by the CFTC, let you ...

You May Also Like

Related Articles
  1. Options & Futures

    A Detailed Look Into China's Options ...

  2. Options & Futures

    Avoid These 10 Mistakes When Trading ...

  3. Options & Futures

    Options -- Accessing Stakes In Apple ...

  4. Options & Futures

    These Are The Top Brokerage Firms For ...

  5. Options & Futures

    Apple As An Example Of How a Protective ...

Trading Center