What Happens When an Out-of-the-Money Option Expires?
Out-of-the-money options expire worthless and do not have any settlement value.
For option buyers, buying an option means purchasing a contractual right, not acquiring the underlying stock or receiving a guaranteed payout. If the option is still out-of-the-money at expiration, it has no intrinsic value and will expire worthless automatically. It will not be exercised, and no cash settlement, compensation, or residual value will be paid.
The premium paid to buy the option is the cost of obtaining that right. It is not a margin requirement or a refundable deposit. If the option expires out-of-the-money, the premium paid will not be returned.
Generally:
- Call Option: If the underlying price is below or equal to the strike price at expiration, it is typically out-of-the-money and has no exercise value.
- Put Option: If the underlying price is above or equal to the strike price at expiration, it is typically out-of-the-money and has no exercise value.
When an out-of-the-money option expires, the contract rights terminate, and the option value becomes zero.
Example:
| Option Held | Status at Expiration | Result |
| Long Call Option | Underlying price is below the strike price | The option is out-of-the-money and expires worthless, with no settlement value |
| Long Put Option | Underlying price is above the strike price | The option is out-of-the-money and expires worthless, with no settlement value |
| Long In-the-Money Option | The option has intrinsic value | The option may be automatically exercised or processed according to Sahm's expiration rules |
Note: After an out-of-the-money option expires, it has no settlement value. However, it may still be displayed on Sahm for a period of time for record-keeping purposes.
