What is an expiration date?

An expiration date is the date at which an option expires. Let us look at an example. Say you buy a call on stock XYZ for $45 for $2. The stock is at $44. You have just bought the right to buy the stock at $45 by a certain date. If the stock does not move up and you do not exercise your right to buy it at $45 by is expiratin date your option expires worthless. You lose your whole $2.

Now how can you tell the date at which a given option will expire? Simple, each option has a date and a target price. If you buy a December $50 call your option would expire on the 3rd Friday of December. Options always expire on the 3rd Friday of the stated month. However, there are a few special options that do not expire at that time. Although rare you will occasionally you will find a stock with 2 December $50 call options. If this is the case call your broker to see which option expires when.

There are a few things to beware of when dealing with options. As an option approaches its expiration date it will gradually lose its value. There are even cases when a stock can move up and the call for that stock can move down. In order to prevent this, always buy options months in advance . A stock that will expire in 3 months will be less affected by time value than a stock that will expire in 1 month.

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