Option Expiry
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Key Takeaway
The date on which an options contract ceases to exist; at expiry, the option is either exercised if in-the-money (capturing intrinsic value) or expires worthless if out-of-the-money; for European-style crypto options (Deribit BTC/ETH), exercise is only possible at expiry, not before.
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What Is Option Expiry?
The date on which an options contract ceases to exist; at expiry, the option is either exercised if in-the-money (capturing intrinsic value) or expires worthless if out-of-the-money; for European-style crypto options (Deribit BTC/ETH), exercise is only possible at expiry, not before.
How Option Expiry Works
Frequently Asked Questions
What happens to my Bitcoin call option if I don't exercise or sell it before expiry?
If your call is in-the-money at expiry (spot above strike), most brokers (Deribit included) automatically exercise, delivering the intrinsic value to your account. You don't need to do anything; the system handles it. If your call is out-of-the-money or at-the-money at expiry, it expires worthless and is removed from your account. The premium you paid is lost—there is no recovery mechanism. If the call is slightly ITM but you don't want the position (don't want to buy Bitcoin at the strike), you can manually let it expire and incur the loss, or sell it before expiry to capture whatever extrinsic value remains. European-style crypto options make exercise automatic, so you need not worry about forgetting to exercise ITM calls. However, you should always close or roll positions before the gamma acceleration period (final 7 days) to avoid unexpected losses from rapid theta decay and pin risk behavior.
Why do options prices collapse suddenly a few days before expiry instead of declining steadily?
Extrinsic value decay accelerates exponentially as expiry approaches—it's not linear. Think of it as compound effect: theta decay rate itself accelerates. An option with 30 days might have daily theta of −$100, but with 5 days, theta is −$500 daily. With 2 days, −$800 daily. This non-linear acceleration creates the appearance of sudden collapse when in fact the underlying mathematics of time decay have made theta acceleration a feature of options pricing. Additionally, in the final days, gamma becomes extremely high (especially for ATM options), meaning delta changes rapidly with small price moves. If your call is OTM near expiry, a 1% Bitcoin move that normally affects the price slightly becomes dramatic because of extreme gamma. This creates volatility perception: the same price moves feel more impactful because delta and gamma are maximized. Professional traders avoid the final week for exactly this reason—the non-linearity in Greeks creates unstable position behavior.
Is it better to close an option early before expiry or hold it to see the final profit/loss?
Professional traders almost always close before expiry, specifically before the final 7 days. The reasons: (1) Time decay accelerates dramatically, working against option buyers. Holding to the final days to 'capture the move' means accepting maximum theta decay even if price moves favorably—vega loss often exceeds delta gain. (2) Gamma risk is maximum near expiry; small adverse moves create large losses in the final week. (3) Pin risk near large open interest strikes causes price stagnation, preventing profitable positions from reaching max profit. (4) OTM options likely expire worthless regardless—closing earlier captures remaining extrinsic value rather than holding to zero. For ITM options with significant intrinsic value, holding might be acceptable if intrinsic value already covers your entry premium—but even then, closing captures any residual extrinsic. The only scenario where holding to expiry is ideal: deep ITM options where intrinsic value far exceeds entry cost; you exercise and capture the value. Otherwise, close or roll.
Common Misconceptions About Option Expiry
If my option hasn't expired yet, it still has value and I shouldn't worry about time decay.
Any option with days remaining does have value, but that value decays every single day. The decay accelerates as expiry approaches. A month away, an option loses roughly 3-5% daily; a week away, it loses 15-25% daily; days before expiry, loss can be 50%+ daily. 'Still having time' doesn't mean time decay isn't working. Most retail traders discover this through brutal experience: they buy an OTM option, check it occasionally, see it has time remaining, then check again before expiry to find it's worthless—time decay has systematically consumed it. Time decay is relentless and accelerating. Professional traders track it daily, especially in the final month before expiry. Ignoring time decay because your option hasn't expired is like ignoring gravity because you're still falling—both are working against you continuously.
I should hold my option all the way to expiry to avoid 'leaving money on the table' by exiting early.
Holding to expiry in hopes of capturing final moves often backfires due to vega and gamma losses. An OTM option bought for $500 that moves to $600 with one week to expiry might seem profitable. But if you hold through the final week, theta decay and gamma risk can easily reduce it back to $300 even if Bitcoin moves more in your favor. The 'leftover money' you're trying to capture is offset by accelerating losses. The alternative: if your option has profit with more than 7 days to expiry, close and redeploy that capital to a new position with more time value. You capture the edge while avoiding acceleration losses. For OTM options: if they expire worthless (most likely), you're losing to theta whether you hold or close—better to close while some extrinsic remains. The best exit is usually before the gamma acceleration window, not at expiry.
All options expire on the same day, so I need to monitor expiry dates carefully.
Crypto options expire on multiple cycles: weekly expirations (usually Friday), monthly expirations (third Friday), and quarterly expirations on most major exchanges. Each contract has its own expiry date. You must track your specific options' expiry dates—a weekly contract expires in 7 days while your monthly contract expires in 28 days. Deribit clearly displays expiry dates for each contract. The monitoring required is simple: note your expiry dates, set calendar reminders for 7 days before (gamma acceleration warning), and decide to close/roll or hold accordingly. It's not complex, but it is critical. Missing an expiry date by accident and holding through gamma acceleration into zero value is a common retail loss. Use exchange alerts and calendar reminders. Expiry dates are never ambiguous—they're defined at contract creation. The requirement is attention, not complexity.