Out-of-the-money options at expiration

Question

It's taught that out-of-the money options that expire at the end of the last trading day expire worthless yet I see many expired options in trading hours that hold their value and continue to trade. Shouldn't they become worthless with a bid and ask price of zero?

xirt · Answer

There will only a bid or ask price of zero if an exchange participant or one of their customers wishes to buy or sell at that price.  Furthermore, most options exchange API interfaces do not allow bids or asks at zero in regular option contracts.  Perhaps $0.01 or $0.05 but not zero.

Furthermore, it is possible that a market participant could sell an out-of-the-money option at $0.01 and between the time the market closes and the final exercise deadline at 5:30 pm Eastern (though earlier in practice) something could happen (e.g. an earthquake).

As a result, other market participants may not be willing to buy and sell at such a low price - the risk and administrative overhead may not be worthwhile.

The timeline:

4:00pm Regular US listed options finish trading.
4:15pm Index-based options and ETFs finish trading.
5:00pm CBOE Global Trading Hours options finish trading (VIX, SPX)
5:30pm Final OCC exercise (or contrary exercise) deadline.

Out-of-the-money options at expiration

One Answer

Add your own answers!

Ask a Question