How it works
Each derivative contract has a clearly specified expiry date set by the exchange. As expiry approaches, liquidity migrates to the next contract month (for rolls) or the option’s gamma and time decay accelerate (for options). Cash-settled contracts settle at a published reference price; physically-settled contracts deliver the underlying to the long position. Most retail CFD brokers handle the operational side of expiry transparently by rolling or settling the position before the last trading minute.
Example
An equity option struck at $100 expires Friday at market close. Underlying closes at $102: call holder receives $2 per share intrinsic value, put holder receives nothing. American-style options can be exercised any time before expiry; European-style can only be exercised at expiry. Cash-settled SPX options settle Friday morning at an opening reference price, not Friday close, which catches unwary traders off guard. CME crude oil futures settle the third business day before the 25th of the month before delivery month.
Why it matters
Expiry is the deadline that resolves the trade. Options that expire out-of-the-money lose 100 percent of premium paid. Position management around expiry requires special care: pin risk (price closing exactly at strike) creates exercise uncertainty; assignment can produce unwanted underlying positions overnight. Long-dated positions should be rolled with explicit thesis check, not just operationally; the new contract is a new trade, not a continuation of the old.
