An option is a wasting asset: it has a fixed expiration date, and as that date nears its time value drains away. Understanding expiration and assignment is essential before you ever trade one.
What happens at expiration
At expiration an option is settled on its intrinsic value alone. An option that is "in the money" has real value and is typically exercised automatically; one that is "out of the money" expires worthless, and the buyer simply loses the premium they paid.
Exercise vs. assignment
| Term | Who acts | Meaning |
|---|---|---|
| Exercise | The option buyer | Chooses to use the right to buy or sell at the strike. |
| Assignment | Happens to the seller | The seller is obligated to fulfil the other side of an exercised option. |
Time decay (theta)
Every day that passes, an option loses a little time value — a force known as theta. This decay speeds up as expiration approaches, which is why buying options is a race against the clock and selling them can earn that decay as income.
Example: you buy a call with a $50 strike. At expiration the stock is $53, so the call is worth its $3 of intrinsic value. Had the stock finished at $49, the call would expire worthless and your entire premium would be lost.
The takeaway
Always know your expiration date and whether your position could be exercised or assigned. Time is never neutral in options — it works steadily for the seller and against the buyer.
