How options expire: third Fridays, exercise style and settlement

Which day an option expires

OCC’s By-Laws define the expiration date of a standard option as the third Friday of its expiration month. If that Friday is a day the listing exchange is not open for business, the expiration date becomes the preceding day on which it is open.

The rule is simple to apply with a calendar and the exchange holiday list. October 2026 begins on a Thursday, so its Fridays fall on 2, 9 and 16 October, and the monthly expiration was Friday 16 October 2026. November 2026 begins on a Sunday, giving Fridays on 6, 13 and 20 November, so the next monthly expiration is Friday 20 November 2026. Neither date is on NYSE’s 2026 holiday list; Thanksgiving falls on Thursday 26 November.

The holiday clause is not hypothetical. In June 2026 the third Friday was 19 June, which NYSE lists as the Juneteenth National Independence Day holiday, so the monthly expiration moved back one business day to Thursday 18 June 2026.

The same definition expressly excludes weekly, short-term, quarterly and flexibly structured options. Those series carry their own expiration dates, which are fixed by the options market that lists them; OCC’s Rule 805 then applies its exercise procedure to them on whatever date that is. That is how expirations on days other than the third Friday exist alongside the monthly cycle.

American and European exercise

The style of an option says when it can be exercised. OCC’s By-Laws define an American-style option as one that can be exercised at any time from its acceptance by OCC until its expiration, and a European-style option as one that can be exercised only on its expiration date. OCC’s disclosure document, Characteristics and Risks of Standardized Options, adds that every European-style option trading at its June 2024 date was exercisable only on its expiration date.

Style is one of an option’s standardized terms, set by the market that lists it and shown on that market’s specification sheet. For a European-style series, the holder’s only exercise decision falls on one day. The disclosure document points out a pricing consequence: because a European-style option cannot be exercised before expiration, it is more likely than an American-style one to trade for less than its intrinsic value before that date.

Physical delivery and cash settlement

The disclosure document separates options into two kinds. A physical delivery option ends in a transfer of the underlying: the exercised call holder buys the shares at the strike, and the assigned call writer delivers them. A cash-settled option pays the difference between the settlement value of the underlying and the strike, in cash, and nothing else changes hands. Standard stock options are physical delivery options; the disclosure document’s examples use contracts covering 100 shares. The disclosure document states that all index options traded at its date were cash-settled.

The settlement timetable is also in the rules. Under OCC Rule 903, delivery for an exercised stock option takes place on the first business day after the exercise notice is tendered, in line with the T+1 cycle the June 2024 disclosure document reflects. Rule 1805 sets the same next-business-day timing for exercised cash-settled options. Applied to the two worked dates, exercises from Friday 16 October 2026 settled on Monday 19 October, and exercises from Friday 20 November 2026 settle on Monday 23 November.

Assignment has its own clock. Rule 803 has OCC assign exercise notices to clearing members with short positions at or before 9:00 a.m. ET on the following business day, and each clearing member then allocates them to its customers under its own fixed procedures.

AM-settled and PM-settled index options

For a cash-settled index option, the question is which index value counts. OCC’s By-Laws define the current index value as the level of the index at the close of trading on the day, but allow an exchange to specify by rule a reported level at another time. In practice, the disclosure document describes two methods. Some index options settle on the index level derived from the last reported prices of the component stocks at the close on the day of exercise, known as PM settlement. Others settle on a level derived from the opening prices of the component stocks on the day of exercise, known as AM settlement.

AM settlement has three features the disclosure document spells out. These options do not trade on the expiration date itself, so the last day to close a position is the trading day before. The settlement value may not be reported until several hours after the opening. And it can differ substantially from the index levels disseminated in the first minutes of trading.

The S&P 500 around the October expiration shows why the choice matters. It closed at 7,744.06 on Thursday 15 October 2026 and at 7,659.44 on Friday 16 October 2026 (Yahoo Finance daily closes): 7,659.44 − 7,744.06 = −84.62 points, or −1.09%. A PM-settled option expiring that Friday settled on the closing level. Take a hypothetical PM-settled call struck at 7,650 with a multiplier of 100: (7,659.44 − 7,650.00) × 100 = $944 in cash, paid on Monday 19 October. An AM-settled option on the same index stopped trading at Thursday’s close and settled on a value built from Friday’s opening prices, which neither Thursday’s close nor Friday’s close gives. We do not print that opening-based value: we have no primary source for it that our rules allow.

Exercise by exception and the $0.01 threshold

At expiration nobody files thousands of individual exercise instructions. OCC Rule 805(d)(2) treats each clearing member as having tendered an exercise notice for every expiring contract whose strike is below the closing price (for a call) or above it (for a put) by $0.01 or more, unless the clearing member instructs OCC to exercise fewer or none. This is known as exercise by exception. Rule 805(g) defines the closing price as the last reported sale during regular trading hours on the market OCC selects, on the expiration date when that is a trading day.

Two limits are written into the rule. Interpretation .02 says the thresholds are administrative procedures to speed processing and do not dictate which customer positions are exercised. And clearing members, and through them brokers and customers, can override the default in either direction before OCC’s deadline. Index options carry different thresholds under Rule 1804: for monthly, weekly and other listed index options with a multiplier other than one, automatic exercise applies at an exercise settlement amount of $1.00 or more per contract, and at $0.01 or more for those with a multiplier of one.

Amazon gives a clean example from the 16 October 2026 expiration. The stock closed at exactly 250.00 that day (Yahoo Finance daily close). For a $250 call, 250.00 − 250.00 = $0.00 in the money, below the $0.01 threshold, so the default was no exercise; the same was true of a $250 put. Had the close been 250.01, the call would have been $0.01 in the money and exercised by exception unless someone instructed otherwise. One caution on the inputs: OCC uses the closing price from the market it designates, which can differ by a cent from a consolidated close printed by a data vendor.

Pin risk, stated plainly

A close exactly on a strike, as in the Amazon case, is what traders call pin risk. It is a matter of information, not of price. The holder of a long option at the strike decides whether to exercise; the default under Rule 805 is not to, but the holder can still instruct an exercise before the broker’s cut-off. The writer of the matching short option cannot see that decision. Assignments arrive by 9:00 a.m. ET on the next business day, so the writer learns after the weekend whether a share position now exists. Prices can move after the 4:00 p.m. ET close and before Monday’s open, and the disclosure document notes that brokers’ exercise cut-off times can be earlier than OCC’s.

How to check these rules and dates yourself

OCC publishes its By-Laws and Rules as PDFs on its By-Laws and Rules page; the expiration-date definition is in Article I of the By-Laws, exercise by exception in Rule 805, cash-settled index options in Rule 1804, and settlement dates in Rules 903 and 1805. The disclosure document is on OCC’s options disclosure document page. For any month, count to the third Friday and compare it with NYSE’s holiday list. Daily closes for the S&P 500 and individual stocks are on Yahoo Finance’s history pages.

How 20-day realized volatility is computed from daily closes, and how it turns into an expected range, is at /articles/realized-volatility-and-expected-move-maths. How option traders use expected moves and IV rank in building vertical spreads is at /articles/options-trading-expected-move-iv-rank-vertical-spreads.