Definition
Expiration is the date and time at which an option or futures contract ends, after which the holder's rights and obligations lapse or are settled. A European-style option can be exercised only at expiration, while an American-style option can be exercised at any time up to that deadline.
How it works
Conventions differ by exchange and product. Contract specifications state the last trading day, the expiry date and time, the exercise style and whether settlement is in cash or by physical delivery. Some exchanges and brokers automatically exercise options that finish in the money, but thresholds and cut-off times vary.
Time to expiry affects the premium, which equals intrinsic value plus time value. Time value shrinks toward zero at expiry, and the decay is usually fastest for at-the-money options in the final weeks. Positions near expiry can face assignment, delivery or margin changes, so many traders close earlier.
Formula / convention
Option premium = Intrinsic value + Time value
Illustrative example
A fictional at-the-money call on Sample Co has a HK$100 strike while the share trades at HK$100, and the option is quoted at HK$4.00 with 60 days to expiry. All HK$4.00 is time value, because intrinsic value is max(100 − 100, 0) = 0. If the share is still HK$100 on expiry day, the option is worth HK$0, so the full HK$4.00 has decayed away.
What to watch for
Never assume that every contract expires on the same day or settles the same way; read the exchange's contract specifications, because missing a deadline can end the position's value or trigger automatic exercise or delivery.