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Expiration Dates versus Expiration Times: Important Clarifications

When we sell covered call options or cash-secured puts, the expiration date of our monthly option contracts is usually the third Friday of the month at 4 PM ET. However, this is not to be confused with the expiration time of these contracts. The latter is the date and time when the contract is rendered null and void. 

Expiration date

This date and time is our main concern… 4 PM ET on the third Friday of the month. This is the deadline for the option sellers to close our short positions.

Expiration time

This is the date and time when the option contracts no longer exist. It is always at a later time than the expiration date, currently at 11:59 PM ET on the expiration date (usually Friday). In the past, options technically expired on Saturday.

Exercise decisions

Options holders (buyers) generally have about 30 minutes to 60 minutes after 4 PM ET to instruct their brokers to exercise an out-of-the-money strike. If positive news comes out immediately after market close, an out-of-the-money strike may become ripe for exercise if a price gap-up is anticipated on Monday morning.

How is the “moneyness of options determined?

The markets close at 4 PM ET on expiration Friday but the published stock prices can and usually will change after 4 PM. For exercise by exception purposes, moneyness is determined by the last traded price on a national exchange on expiration day. There is an “Early Prices” report that is generally available about an hour after close. However, there could be a “revised report” that is published a bit later with any adjustments or corrections that need to be made. It is impossible to place a time on the latter report. These reports are used if the option holders do not communicate with their firm.

What is the latest time a clearing member can submit an exercise notice to the Options Clearing Corporation (OCC)?

5:30 PM ET on expiration day.

Can out-of-the-money options be exercised?

Yes, the option holder can exercise for any reason up until their firm’s cutoff time. Also, after-hours news events can motivate exercise notices for options that expire OTM if that new information appears to influence price opening on Monday.

Options Clearing Corporation (OCC) flow chart

OCC MANAGING OUR TRADES

Discussion

Expiration date and expiration time are not the same. The former represents the last time option traders can take action on their positions. The latter is when options contracts are rendered null and void. If share price is near the strike as 4 PM ET approaches on expiration day, we must factor in that the moneyness of the option may flip after hours.

Your generous testimonials

Over the years, the BCI community has been incredibly gracious by sending our BCI team email testimonials sharing stories as to what our educational content has meant to their families. Moving forward, we have decided to share some of these testimonials in our blog articles. We will never use a last name unless given permission:

Alan, 

I watched some of your videos on what to do if a stock gaps down, and referenced your books that I own. Basically, gave myself all of the info I need to make an OBJECTIVE, not emotional, decision.

I wanted to thank you for the library of videos I have access to, the books and also your email replies. Thank you so much.

Mark

Upcoming events

November 2, 2019 @ 3 PM ET

Money Answers Radio Show:

I have accepted an invitation to be interviewed on this program on Monday December 2nd at 3 PM ET – 4 PM ET. I’ll provide more information as I receive it.

February 6th – 9th 2020 Orlando Money Show

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BOOTH 306

Information to follow

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About Alan Ellman

Alan Ellman loves options trading so much he has written four top selling books on the topic of selling covered calls, one about put-selling and a sixth book about long-term investing. Alan is a national speaker for The Money Show, The Stock Traders Expo and the American Association of Individual Investors. He also writes financial columns for both US and International publications along with his own award-winning blog.. He is a retired dentist, a personal fitness trainer, successful real estate investor, but he is known mostly for his practical and successful stock option strategies.

15 Responses to “Expiration Dates versus Expiration Times: Important Clarifications”

  1. Hoyt T November 9, 2019 11:09 am #

    Hi Alan,

    Excellent article.

    I have in the past been on the receiving end of assignments that at 4:00pm appeared to have expired worthless. The main reason was that I was “penny pinching” trying to avoid commissions and fees. Then I learned that with long positions I could just call my broker(E-trade) and tell them that if a position ended up ITM I did not want to exercise. Unfortunately I couldn’t do that on short positions.

    Up until the zero commission era, E-trade had a Dime Buy Back program where you could buy back your short positions commission free if the price was $0.10 or less. You only had to pay the per contract fee which was $0.50.

    Due to a previous bad experience in a short assignment I decided to always close my short positions. Happily with zero commissions a psychological barrier has been removed. See “penny pinching” above.:)

    In our current market environment it seems to be we have more volatility after market close, especially during earning s season. One stock, maybe the first of its group, may report strong up or down profits or revenues at market close and others in that group make major moves immediately which trigger assignments on short calls or puts depending on the direction.

    While these may be extremely rare for those of us with positions using the BCI methodology, they can occur.

    Thanks again for an excellent article.

    Hoyt

  2. Tony November 9, 2019 12:07 pm #

    Alan,

    Enjoyed reading your book : Selling Cash-Secured Put, BUT where to look for candidates for cash secured selling?

    Regards,
    Tony

    • Alan Ellman November 9, 2019 4:28 pm #

      Tony,

      The same securities that make outstanding covered call writing candidates are precisely the ones that we should use for put-selling. The lists of eligible short-term option-selling candidates we provide to our premium members should be used for both strategies. These screens include fundamental and technical analysis as well as common-sense screening.

      Alan

    • Jay November 11, 2019 2:07 pm #

      Hey Tony,

      I am convinced cash secured puts should be in every investor’s tool box who uses options. Alan’s book on the subject is great and a must read.

      Since all of us in this community trade options I suspect we each get questions about it from inquisitive but wary friends? Then the challenge for us is to inform but not overwhelm them!

      I always talk about covered calls as “renting out your stock”. I talk about selling cash secured puts as “being a nervous bull”.

      If my friends are any barometer there is no burning desire on the part of smart people with sideline cash to put it in the market these days. That in itself is a bullish indicator!

      So I tell them if it’s money they intend for the market at some point anyway don’t leave it all in money market. Use an obligation on some to rent out time and sell cash secured puts below something you want to own. I use QQQ a lot. But maybe it’s DIS or APPL or NVDA or anything you feel strongly about? Stocks get higher rent than ETF’s!

      Some times my friends get it and some times their eyes glaze over :)!

      A great Nov expiry week to all. – Jay

      • Roni November 11, 2019 4:53 pm #

        Hello Jay,

        Our motives may not be the same, but we are all in the stock market trying to get better returns than treasuries or mutual funds.

        I believe that the biggest advantage of using the BCI options trading methodology, is invest/trade with a METHOD.

        Without a method, you are just gambling.

        Please correct me if I’m wrong.

        Cheers – Roni

        • Jay November 11, 2019 6:46 pm #

          Hey Roni,

          Wonderful to exchange notes with you as always!

          I suspect anyone who advocates gambling over having a method would be broke in no time :)!

          Selling csp’s is a part of BCI’s method I have found good use for.

          That said, I do a little gambling on the side :). All the best, – Jay

  3. Barry B November 9, 2019 10:45 pm #

    Premium Members,

    This week’s Weekly Stock Screen And Watch List has been uploaded to The Blue Collar Investor premium member site and is available for download in the “Reports” section. Look for the report dated 11/08/19.

    Also, be sure to check out the latest BCI Training Videos and “Ask Alan” segments. You can view them at The Blue Collar YouTube Channel. For your convenience, the link to the BCI YouTube Channel is:

    http://www.youtube.com/user/BlueCollarInvestor

    Since we are in Earnings Season, be sure to read Alan’s article, “Constructing Your Covered Call Portfolio During Earnings Season”. You can access it at:

    https://www.thebluecollarinvestor.com/constructing-your-covered-call-portfolio-during-earnings-season/

    Best,

    Barry and The Blue Collar Investor Team

    [email protected]

  4. Brian November 12, 2019 1:11 am #

    Alan,

    I have done some options trading before and do have some familiarity with options so decided to go ahead and got into the trades.

    I. Am. Starting out with $100K, bought AMED, BLD, BMY, BOOT, CDW, FISV, MTZ, RNG, SKX and SNBR. With the market trend up, I sold Dec 20 calls 1 or. 2 strikes away from current prices, accumulating $2261 (within the 2-3% montlhly range you have suggested) and abiding to the rules (more than 250000 shares traded, 250+ option contracts at the strike prices and bid-ask spreads of less than 30 cents.

    Everything looks on track for now and I. Have familiarized myself with the exit strategies when the underlying stocks move up and down. Being very new to BCI (I met you at the AAII meeting. In Orlando 3 weeks ago), I am a bit unclear on how to manage the stocks themselves. Do I need to set stops for them which of course will need to be tied up to the options (Close the Options First).

    Many thanks,
    Brian

    • Alan Ellman November 12, 2019 6:11 am #

      Brian,

      Consider closing the long stock position (after the short call is closed) when the security is significantly under-performing the overall market. A reasonable specific threshold to use for selling the stock is 7% – 8% lower than the price when the trade was entered.

      Alan

    • Jay November 12, 2019 11:59 am #

      Hey Brian,

      Sounds like you have this down – congrats! A thought to add to Alan’s is also compare how your stock is doing against it’s specific sector before deciding to sell. I’ll use your BMY since I have it too. I would not be interested in getting rid of it until it started to lag the XLV. Since the CELG announcement it is up 3x the XLV so it has been a good one for us. – Jay

  5. Alan Ellman November 12, 2019 7:53 am #

    Premium members:

    The Blue Chip Report for the top-performing Dow 30 stocks for the December contracts has been uploaded to your member site. Look in the “resources/downloads” section of the member page (right side).4 stocks were removed and replaced by 4 others from last month’s report.

    Alan

  6. Frank November 12, 2019 2:24 pm #

    Alan, I have a question and a comment:

    1. At what point do I close out (sell the stock) after it falls below the break even point. i.e. what percentage loss is it acceptable to take or should I just exit at the break even point, understanding that I have a very low tolerance for loss.

    2. Is there some way you can identify in your search list, with an asterisk or something, those stocks that have a premium return of 2% or better. This would save me a lot of time going through your entire list, which is why I subscribed to the program in the first place, which by the way I think is terrific!

    Frank

    • Alan Ellman November 12, 2019 4:27 pm #

      Frank,

      1. I generally sell a stock after closing the short call when it is significantly under-performing the overall market. A reasonable threshold is 7% – 8% below the price when the trade was entered.

      2. A general guideline to assist with option premium is to look at the Beta column (historical volatility) which does have a relationship to the percent of time-value return we may receive. Although the implied volatility is more closely associated with premium, checking securities higher Betas may save some time.

      Alan

  7. Terry November 13, 2019 12:28 pm #

    CTAS is getting beat down by short sellers.

  8. Barry B November 15, 2019 2:35 pm #

    Premium Members,

    The Weekly Report may be delayed until Sunday morning due to systems work being done by Schwab. The message that I received from Schwab this afternoon is as follows:

    “To ensure we’re delivering the best experience possible, we’ll be conducting routine systems maintenance on Friday, November 15 at 10:00 PM ET through 3:00 AM ET Sunday, November 17. During this time some functionality may be intermittently slow or unavailable. We apologize for any inconvenience.”

    Best,

    Barry and The Blue Collar Investor Team

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