The expiration date is the date on which an option contract expires and becomes invalid. After the expiration date, the option can no longer be exercised, and any rights associated with the option contract expire. Option contracts have a specific expiration date that is agreed upon when the contract is created.
For example, if an investor purchases a call option with a strike price of $50 and an expiration date of August 31st, they have until the end of August 31st to exercise the option. If they fail to do so, the option becomes invalid, and they lose any right to buy the underlying asset at the specified strike price.
The expiration date is a crucial factor in option trading as it affects the value of the option. As the expiration date approaches, the time value of the option decreases, and the option becomes less valuable. Therefore, options traders need to carefully consider the expiration date when buying or selling options.
It’s important to note that there are several types of options, including European-style options and American-style options, which have different rules regarding when they can be exercised. European-style options can only be exercised on the expiration date, while American-style options can be exercised at any time before the expiration date.