When does an option contract typically expire?

When does an option contract typically expire?

• A. On the last day of the expiration month
• B. On the SATURDAY following the third Friday of the expiration month at 11:59 PM ET
• C. The day prior to the expiration month
• D. The first Friday of the expiration month

Answer: (B)

The correct answer is that an option contract typically expires on the Saturday following the third Friday of the expiration month at 11:59 PM ET. This is based on standard practices in the options market. The third Friday of the expiration month is considered the last trading day for equity options, and options can be exercised on that day, but the contracts themselves do not officially expire until the end of the day on Saturday. Therefore, if an option is exercised on the last trading day, it is settled the following day. This timing allows traders and investors to take necessary actions or make trading decisions based on the market's movements right up until the end of the expiration period. The specific time of 11:59 PM ET also ensures clarity regarding when the option is no longer valid, which is crucial for both buyers and sellers. Other choices lack accuracy concerning the established expiration protocol for options.

The correct answer is that an option contract typically expires on the Saturday following the third Friday of the expiration month at 11:59 PM ET. This is based on standard practices in the options market. The third Friday of the expiration month is considered the last trading day for equity options, and options can be exercised on that day, but the contracts themselves do not officially expire until the end of the day on Saturday. Therefore, if an option is exercised on the last trading day, it is settled the following day.

This timing allows traders and investors to take necessary actions or make trading decisions based on the market's movements right up until the end of the expiration period. The specific time of 11:59 PM ET also ensures clarity regarding when the option is no longer valid, which is crucial for both buyers and sellers.

Other choices lack accuracy concerning the established expiration protocol for options.