Do Stock Options Expire at the End of the Day?

Firstly, it is important to distinguish between different types of stock options and their expiration timelines. Standard stock options, typically those listed on exchanges like the Chicago Board Options Exchange (CBOE), expire on a specific date, which is known as the expiration date. For equity options, this date is usually the third Friday of the expiration month.

However, the expiration does not mean the options automatically become void at the end of the trading day. On the expiration date, trading of these options will end at the close of the market. This is a critical point for traders who need to make decisions before the market closes on the expiration day.

In contrast, some options, such as weekly options, have expiration dates that are not tied to the third Friday but rather to the specific week they are issued. These options also expire at the end of the trading day of their expiration week.

Additionally, there are options known as "European-style" options which can only be exercised on the expiration date itself. These options have a different expiration dynamic compared to "American-style" options, which can be exercised any time before or on the expiration date.

A common misconception is that options lose their value instantly at the end of the trading day. While it’s true that options cease to be tradable after market close on their expiration date, their value is determined based on the underlying asset’s price and the time value remaining until expiration. If an option is in-the-money (ITM) at expiration, it will typically be automatically exercised or settled based on its terms.

For those holding options near expiration, it's crucial to understand their intrinsic and extrinsic values. The intrinsic value is the difference between the underlying stock's price and the option's strike price. The extrinsic value, or time value, diminishes as expiration approaches. This time decay accelerates as the expiration date nears, impacting the option's price.

Options traders often use strategies to manage their positions as expiration approaches. Some may close their positions before the expiration date to avoid assignment or to lock in profits, while others may roll over their options to extend their expiration dates. Understanding the mechanics of these strategies can help traders make informed decisions.

In conclusion, while stock options do expire, the specifics of their expiration depend on various factors including the type of option and the market conditions. Traders should be aware of the expiration schedules and manage their options accordingly to optimize their trading strategies.