Strike and expiry
The two numbers that define the contract: the price you are betting on and the date it stops existing.
Two numbers define every contract: the price you are betting on, and the date the bet closes. Pick either one badly and a correct read on the stock can still lose.
The strike price
The strike is the price the contract lets you trade at. A 215 call is the right to buy at 215 no matter where the stock actually goes. The strike never changes. The stock moves around it, and the contract is worth more or less depending on where the stock sits relative to that number.
In, at, and out of the money
| Term | For a call | For a put |
|---|---|---|
| In the money | Stock is above the strike | Stock is below the strike |
| At the money | Stock is sitting roughly on the strike | |
| Out of the money | Stock is below the strike | Stock is above the strike |
An in the money contract has real value baked in right now. An out of the money contract has none, and everything you paid for it is a bet that the stock gets there in time. Out of the money contracts are cheaper for exactly that reason, and they are the ones that go to zero.
The expiration date
Expiration is the day the contract stops existing. Most liquid names have contracts expiring every Friday, and the big index products have them nearly every trading day. You will hear weeklies for the near-dated ones and monthlies for the third Friday contracts, which tend to carry the most open interest.
The shorter the time to expiration, the cheaper the contract and the more violently it moves. A contract expiring the same day can double or go to nothing inside an hour. That is not an argument for or against trading them. It is a reason to understand exactly what you are holding before you hold it.
What expiring worthless means
If your contract is out of the money when the closing bell rings on the expiration date, it settles at zero. Not a small loss. The entire amount you paid is gone, and there is nothing left to sell or hold onto. This is the single biggest difference between an option and a share: a share you were wrong about is still worth something on Monday.
You will see this in our public trade log as an expired result. Those entries stay in the record and count against the numbers on our track record page, because a log that quietly dropped them would not be a log.
Picking either one is the hard part
Every strike and every expiration is available to you at once, and the choice changes both the cost and the odds. How we choose between them, and how we size the position that results, is the method rather than the mechanics, and it is what the member Playbook covers.
Educational content only. Trading options involves substantial risk of loss and is not suitable for every investor. Nothing on this page is financial advice or a recommendation to buy or sell any security.