Contract Expiration

Contract expiration is the specific date and time when a derivative contract ceases to exist and is settled. At this point, the contract is either settled in cash or requires the delivery of the underlying asset, depending on the contract specifications.

For options, expiration determines whether the contract is in the money, out of the money, or at the money, which dictates the final payoff. Managing the approach of the expiration date is a critical part of strategy duration management, as the behavior of the options Greeks changes significantly as the time to maturity approaches.

Traders must decide whether to close their positions, roll them into a new contract, or allow them to expire. This decision is often based on the traders market outlook, the current cost of rolling, and the desire to manage risk exposure.

Understanding the mechanics of expiration is fundamental to derivative trading.