John Jagerson

Expiration, Exercise and Assignment

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Whether you are an options buyer or seller, you will want to make sure you understand how expiration, exercise and assignment can affect your trades. It is also absolutely critical that you have a conversation with your broker about their policies relative to these three issues, since they can vary from one broker to another.

Rules can also change periodically and, typically, your broker will notify you of these changes. But you need make sure you pay attention and read the notifications when you receive them.

Expiration

All options have a countdown timer attached to them. A put or call option will only last until its expiration date on the third Friday of its expiration month. That means that if your option expires in December 2009, then the actual expiration date is Dec. 18, 2009.

Once expiration has passed, the option no longer exists and is worthless. Therefore, most of your trades should be completed before the expiration date.

This is usually not a problem if you buy an option with an adequate amount of lead time. When executing a trade, think about giving yourself enough lead time to let the trade "work itself out." (See Give Yourself Time to Be Right.)