What Time Do SPX Options Expire and Settle?
Understand SPX option expiration and settlement. Learn the key times and processes that determine final value and impact your positions.
SPX options are financial instruments that allow individuals to speculate on the movement of the S&P 500 Index without directly owning its constituent stocks. Understanding the precise mechanics of their expiration and settlement is important for anyone involved with these contracts. The timing of when trading ceases and how the final value is determined directly impacts potential outcomes for option holders and writers.
The Expiration Time for SPX Options
Monthly SPX options, which are designated for A.M. settlement, stop trading on the business day immediately preceding their expiration date. This usually occurs on a Thursday at 4:00 PM Eastern Time (ET). This early cessation of trading means that positions in these monthly options cannot be adjusted on the actual expiration Friday.
Weekly SPX options generally continue trading until the market close on their expiration day. This means trading for these P.M.-settled options ceases at 4:00 PM ET on Monday, Tuesday, Wednesday, Thursday, or Friday, depending on the specific weekly series. Monthly SPX options expire on the third Friday of each month, but if that Friday falls on a holiday, the expiration and final trading day shift to the preceding Thursday.
Understanding A.M. and P.M. Settlement
The distinction between A.M. and P.M. settlement is a fundamental aspect of SPX options, dictating how their final value is calculated. A.M.-settled options, which include the standard monthly SPX contracts, determine their final settlement value based on a Special Opening Quotation (SOQ) of the S&P 500 Index. This SOQ is derived from the opening trade prices of all 500 individual stocks that comprise the S&P 500 Index on the morning of the expiration Friday.
If a particular stock within the index does not open for trading at the market open, its last reported trade price from the previous trading day is used in the calculation of the SOQ. The final settlement value is typically disseminated by the exchange approximately 30 to 45 minutes after the market officially opens on expiration day. This A.M. settlement process introduces a period of overnight risk for traders, as the options cannot be traded on the morning of settlement, yet their value is determined by market activity at the open.
In contrast, P.M.-settled options, which encompass most weekly SPXW contracts, use the official closing level of the S&P 500 Index on their expiration day as the basis for settlement. For these options, trading continues until the market closes, allowing participants to manage their positions based on real-time price movements up to the final seconds of the trading session. The value for P.M.-settled SPX options is determined using the standard SPX ticker at market close. This direct reliance on the market’s closing price for P.M.-settled options can provide a clearer picture for position management, as the settlement value is the same as the last traded price of the index.
What Happens at SPX Option Expiration
SPX options are classified as European-style options, meaning they can only be exercised on their expiration date, not at any point prior. This characteristic removes the possibility of early assignment for option sellers, simplifying risk management. Furthermore, SPX options are cash-settled instruments, which is a significant departure from equity options that involve the physical delivery of shares. Cash settlement means that there is no exchange of underlying stocks.
Instead, if an SPX option finishes in-the-money, the difference between the option’s strike price and the final settlement value is paid out in cash. For example, a call option that expires with the S&P 500 index above its strike price will result in the holder receiving a cash payment equal to the in-the-money amount, multiplied by the contract’s multiplier, typically $100. Similarly, a put option that expires with the index below its strike price will lead to a cash payment to the holder.
The Options Clearing Corporation (OCC) plays a central role in facilitating this settlement process, ensuring the efficient and orderly transfer of funds between parties. For options that are in-the-money by a certain threshold, typically at least $0.01, automatic exercise occurs, streamlining the process for investors. The actual cash settlement, where funds are debited or credited to brokerage accounts, usually takes place on the next business day following the expiration date. SPX options are also designated as Section 1256 contracts under the tax code.