The term expiration date refers to the final day the holder of an option contract can exercise their right under the agreement. After the expiration date, the seller of an option can no longer be assigned.
Also known as the expiry date, the expiration date is the last day the holder of an option can exercise their right to buy or sell the underlying asset or trade the contract. For example, if the holder of an option does not exercise their right prior to the expiration date, the contract will expire and no longer have any value.
An American-style option can be exercised at any time before its expiration date. Generally, monthly American options expire on the third Saturday of the month and are closed for trading on the preceding Friday. The exception to this rule occurs if the first day of the month falls on a Saturday. If so, then the expiration date will be the third Friday of the month.
A European-style option can only be exercised on a certain day before its expiration date; typically, this occurs at maturity. Generally, monthly European options expire on the Friday prior to the third Saturday of the month and are closed for trading on the preceding Thursday.
The expiration date is also an important variable when determining an option’s premium. Delta is the rate of change in the theoretical premium paid or received for an option for every unit change in the price of the underlying asset. The delta for an in-the-money call option will approach 1.00 as the option approaches its expiration date, while the delta for an in-the-money put option will approach -1.00 as the option approaches its expiration date.