When Do Options Stop Trading Before Expiration?

Options are financial contracts that derive their value from an underlying asset, such as a stock, exchange-traded fund (ETF), or index. These contracts provide the holder with the right, but not the obligation, to buy or sell the underlying asset at a predetermined price, known as the strike price, on or before a specific date. This defined lifespan distinguishes options from direct ownership of the underlying asset. Understanding when an option can no longer be traded is crucial for managing positions effectively.

Understanding Expiration Dates

An option’s expiration date marks the day the contract officially becomes void, ending its life and the rights granted. For most equity options, the standard expiration cycle typically falls on the third Friday of the month. However, the financial markets now offer a broader range of expiration cycles, including weekly and even daily options, providing traders with more flexibility and shorter-term strategies.

The exercise window for an option depends on its style. American-style options, common for individual stocks and ETFs, allow the holder to exercise their right to buy or sell the underlying asset at any time up to and including the expiration date. In contrast, European-style options, often associated with index options, can only be exercised on the expiration date itself. The expiration date is the formal end of the contract’s validity, distinct from when trading ceases on an exchange.

When Trading Ceases

For most equity options, trading typically stops at 4:00 PM Eastern Time (ET) on the day before the official expiration date. For example, if an option expires on a Friday, the last trading opportunity is generally the preceding Thursday at 4:00 PM ET. This means that after this time, you cannot buy, sell, or close out your position through the exchange.

There are variations for certain types of options, particularly index options. For instance, some broad-based index options, such as those on the S&P 500 Index (SPX), may have different trading cessation times. Standard SPX options often cease trading at 3:15 PM Central Time (4:15 PM ET) on the business day preceding their exercise-settlement value calculation, which is usually Thursday. SPX Weeklys (SPXW) may trade until 3:00 PM Central Time (4:00 PM ET) on their expiration day. It is important to confirm the specific trading hours for any particular option contract, as these times can vary.

Once trading ceases, the ability to exit a position by selling the option in the open market is no longer available. Awareness of these cutoff times is important, especially for options near expiration. Failing to close a position before trading ceases means that the option’s fate will be determined by its intrinsic value at expiration, or through automatic exercise.

Actions After Trading Stops

After an option’s trading period concludes, specific processes determine its outcome at or before official expiration. For American-style equity and ETF options, if the option is “in-the-money” (ITM) by at least $0.01 at expiration, the Options Clearing Corporation (OCC) generally facilitates its automatic exercise. This means a call holder automatically purchases 100 shares at the strike price, and a put holder automatically sells 100 shares. This automatic process aims to prevent valuable options from expiring worthless due to oversight.

For options writers (sellers), the automatic exercise of an ITM option results in an assignment. This obligates the option seller to fulfill their contract (sell shares for a call, buy for a put). Out-of-the-money (OTM) options, having no intrinsic value, generally expire worthless and are not automatically exercised. Investors holding OTM options lose the premium paid.

Despite automatic exercise for ITM options, a long option holder can manually instruct their broker to exercise an American-style option (even if OTM) or prevent an ITM option from being automatically exercised. This “Do Not Exercise” (DNE) instruction must be submitted to the brokerage firm by a specified cutoff time on expiration day, which is typically 5:30 PM ET, though individual brokers may have earlier deadlines. Manually exercising an OTM option is rare, typically occurring only under specific circumstances where there is an expectation of a favorable price movement after market close but before the exercise cutoff.

Other Reasons for Trading Halts

Beyond the regular expiration cycle, options trading can temporarily or permanently cease due to other market events. A common reason is a trading halt in the underlying stock. If a stock’s trading is temporarily suspended on its primary exchange, options contracts on that stock will also be halted across all options exchanges. Halts can be triggered by significant news announcements, unusual price volatility, or market-wide circuit breakers.

Corporate actions can also lead to adjustments in option contracts or cessation of trading in existing contracts. Events like mergers, acquisitions, stock splits, or large special dividends can alter existing option terms, often resulting in new, adjusted contracts or delisting of originals. The Options Clearing Corporation (OCC) provides details on how these adjustments maintain the option contract’s economic value. In rare instances, if an underlying asset is delisted, its corresponding options contracts will also cease trading.