If you are learning how to trade options you may know that options contain a very unique characteristic. They expire and they always expire. After a certain date and time, commonly referred to as the expiration date, options become worthless. Comparing trading options online to a sports , there is a clock begins ticking as soon as you buy or sell an options contract. Similar to a football game when the clock runs out and the game is over, so it is with options.
The expiration date is listed on every options contract. Essentially all options contracts ceased trading on the third Friday of each month at 4 PM Eastern standard Time which is when the market closes. Traditionally this is known in trading circles and on television as options expiration day. On the third Friday of each quarter thousands of options contract expire simultaneously. This is referred to as triple or quadruple witching day. The market has a tendency to be very volatile on these days.
Unlike stocks, which exist indefinitely, unless a company goes out of business or merges with another, every options contract as an expiration date, sometimes it occurs in a month, sometimes longer. Because of the expiration date options can be more of a risk than stocks. The pressure of the clock ticking makes them riskier in and of itself. The upside is, that since you know in advance that the option will expire, you will have that time to make your profits. The more time left on option contract the more valuable the contract.
We will expand on the types of options, however, there are essentially two types of stock options. They are a call and they put in with these types of options you can only take two actions by or sell. Do not be misled by the various names and fancy sounding trading strategies for trading options. Remember there are two types and you will be either buying or selling calls or puts. Especially for a beginning options trader, keeping the terminology basic and a trading strategy elementary will help you to succeed and trading options online.