Option Expiration
Option expiration is the date on which an options contract becomes invalid and the right to exercise it no longer exists. Options contracts are agreements between two parties to buy or sell a security at a predetermined price, known as the strike price, on or before the expiration date. Options can be used to hedge against risk, speculate on future price movements, or generate income.
History of Option Expiration
The concept of option expiration dates has been around since the early days of trading. In the 1700s, the Dutch East India Company used options to hedge against risk. Options were also used in the early 1800s by the London Stock Exchange. The Chicago Board Options Exchange (CBOE) was founded in 1973 and is the largest options exchange in the world. It introduced standardized options contracts with expiration dates and standardized strike prices.
Comparison of Options Expiration
| Type of Option | Expiration Date |
|---|---|
| American Style | Anytime before expiration date |
| European Style | Only on expiration date |
Summary
Option expiration is the date on which an options contract becomes invalid and the right to exercise it no longer exists. Options contracts are agreements between two parties to buy or sell a security at a predetermined price, known as the strike price, on or before the expiration date. Options can be used to hedge against risk, speculate on future price movements, or generate income. American style options can be exercised anytime before the expiration date, while European style options can only be exercised on the expiration date. For more information about option expiration, visit the websites of the CBOE, the Options Industry Council, or Investopedia.
See Also
- Options Contract
- Strike Price
- Options Trading
- Options Clearing Corporation
- Options Pricing
- Options Hedging
- Options Arbitrage
- Options Gamma
- Options Delta
- Options Theta
