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.

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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.

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