Expiry date definition

What is an expiry date in trading?

An expiry date (or expiration date) in trading is the point at which a position automatically closes. In other words, a trader will have to decide what they want to do with their open position before the expiry date. They could close it manually, leave it to expire or – depending on the instrument they’re using – roll it over.

Which financial products have expiry dates?

Only certain financial products have expiry dates – it varies from product to product. Spread bets, for example, always have a fixed expiry date. CFDs (contracts for difference) do not have an expiry date, unless they are on futures or digital 100s.

With options, the expiration date is the point at which the trader can choose to exercise the option or let it expire worthless – as they are under no obligation to exchange the asset. But with futures contracts, traders must either exchange the asset at the expiry date or roll over the contract.

How do expiry dates impact a position’s value?

How expiry dates impact a position’s value depend on the product. With spread bets, expiry dates drive liquidity in the market – they do not affect the value of the position. CFDs don’t have expiry dates and therefore the position’s value is not affected either.

With options, the value of the contract is influenced by the expiry date. After it expires, the contract has no value at all, so the longer it is until the expiry date, the more time the market has to hit the strike price.

The strike price is the price at which an option can be exercised, and the price at which the underlying asset will be bought or sold. This means that if you have two out of the money options with identical strike prices on the same market, the one with the later expiry date has more time to become at the money or in the money.

With futures, you are taking on the obligation to buy an asset at an agreed price when the contract expires. The expiry date does not affect the futures contract’s value, as the contract must be settled, regardless of the market value, or spot price.