Expiration (Options) Explained - Derivatives

In the financial industry, the expiration date of an option contract is the last day on which an option holder can exercise his options on stocks, bonds or other financial instruments. In the case of options with automatic exercise, a short position is charged with the net value of the option and credited to the long position. Expiration dates for the exchange - option contracts usually expire according to a pre-determined calendar. In the US, stock option contracts are quoted on the third Friday of each month, and if Friday is a market day, the expiration date is Saturday, though in some cases it is Thursday, which immediately precedes Friday. However, some holders (broker-holders) may request that the options are not exercised automatically. The options in the money, if they expire, are exercised by the clearing house to maintain their value for the option holder, while the expiring options expire to benefit from the commissions levied by account holders. During the expiry, the margin held by the clearing company (the holder or author of the options) will be transferred back to the trader's free account. If the option is not automatically exercised in the money, this leads to a loss of profit for the broker - owner. 

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