expiration date

noun
Updated on: 13 Oct 2017

Definition of expiration date

1 :the date after which something (such as a credit card) is no longer in effect
2 :the date after which a product (such as food or medicine) should not be sold because of an expected decline in quality or effectiveness

Examples of expiration date in a Sentence

  1. Check the expiration date on the bottle to make sure the medicine is still good.

First Known Use of expiration date

circa 1946


Financial Definition of EXPIRATION DATE

expiration date

What It Is

The expiration date is the last day an options contract can be exercised. After that, the contract becomes null and void.

How It Works

When an options contract is written, the expiration date is specified as one of its terms. For equity options, this date is usually the third Saturday of the specified month of expiration. The contract's expiration date is the last opportunity the holder has to exercise the options contract. When the expiration date passes, the terms of the contract become void and the contract loses the entirety of its market value.

Why It Matters

An option's price is made up of two main factors: intrinsic value and time value. Time value is directly related to the amount of time the option has before it expires. The longer an option has until its expiration date, the more time the underlying stock price has to move, which makes the option more valuable. As the contract moves closer to its expiration, the odds that the stock price will change are lower, and the option's value decreases.

Also, if an option is at or near its strike price near to its expiration, the volatility of the option will most likely increase.


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