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Expiration
The contract ends on its expiration date, after which the holder has no remaining option rights.
Lesson · Options Trading
Expiration and Time Decay
Trace how a long option’s theoretical value changes as the days run out with everything else held still, separate intrinsic from extrinsic value, and explain why the daily decay is not a constant.
Synthetic educational examples
Core concepts
Extrinsic value is the price of time, and time runs out.
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Extrinsic decay
Extrinsic value reaches zero at expiration; the path toward zero is not linear.
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Theta
Theta estimates the option-value change associated with one day passing while other model inputs are held constant. It is quoted per share; a one-contract position shows it × 100.
Interactive lesson
Hold stock and volatility still and slide the days remaining; the curve is the same option priced at every day of its life.
Horizontal axis: days remaining. The curve is a theoretical snapshot, not a forecast of the future option price.
Evaluate time exposure
Time must be part of the trade thesis, not an afterthought.
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Match expiration to the thesis
Allow enough time for the expected price movement and known events.
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Separate intrinsic and extrinsic
Only extrinsic value is directly exposed to disappearing at expiration.
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Inspect theta and DTE
Near-term options can change rapidly, especially around the strike.
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Define an exit before expiration
Do not rely on automatic expiration handling as a management plan.
Expiration and decay
Score 0 / 0Choose the best answer.
Lesson rule
Change the inputs, calculate the result, and explain the risk before selecting a contract.
Common mistakes
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Assuming decay is linearA fixed daily subtraction does not describe how theta changes through time.
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Buying too little time because premium is cheaperLower premium can come with faster decay and less time for the thesis.
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Holding through expiration without a planExercise, assignment, and after-hours price moves can create unintended positions.
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Reading theta as a contract figureTheta of −0.05 on the screen is per share; the position loses about $5 a day per contract, and a broker’s position view will show it that way.
Completion standard
✓
Finish when you can say what a long option is worth at expiration, which way its extrinsic value moves as days pass with everything else held still, and why the daily figure grows as expiry nears.
The drill asks for theta in contract dollars and for which of two expirations decays faster; neither needs the chart.
Model scope: Theoretical values use a simplified European Black–Scholes model with a fixed 4.5% annual rate and no dividend input, so a number here can be reproduced in any calculator that takes those inputs. Listed products, early exercise, dividends, spreads, fees, and market conditions can produce different prices and outcomes.