When Selling Options, What Happens On Options Expiration Day?
So, when selling put options or any options, people often ask what happens when options reach their expiration date? Only two things can occur at expiration – either the price of the stock is above the chosen strike price or it’s below. • If the stock finishes above the strike price, then the trade is over and the option expires worthless. The option buyer walks away with nothing while the option seller gets to keep the upfront cash with no further obligations. • If the stock finishes below the strike price at option expiration, the option buyer will “exercise” his right to the contract and you will be required to fulfill your end of the agreement – which means you end up having to buy a stock you wanted at the price you wanted. Sounds pretty good to me. And all the while you still get to keep the upfront cash. So in the case of our Microsoft example above… • If Microsoft closes below $20 in January 2010, you will be obligated to purchase your 1,000 shares at $20 each. With the $130 re
