Expiring an option means that the time at which an option becomes worthless. If it expires then the customer loses the right in the contract. The customer also loses the premium, fee and commission related with the purchase.
Option Expires Out of the Money
There are three options available with the customers that are available before the option expires.
First is the In-the-money that gives profitable results if exercised properly. The second is Out-of-the-Money where the option runs out of money and becomes worthless. The third is buying or selling the trade that is close to the position.
Out-of-the-Money is the condition in which the strike price is higher than the current market price of the underlying security. However, to put option holder Out-of-the-Money is the situation in which the strike price is lower than the current market price.
Out-of-the-Money has no intrinsic value but has only time value. If an option has no money at the expiry, it will expire worthless.
What will happen if an Option Expires out of Money?
There are two possible effects, if the option runs out of money.
For Buyer (call or put) – If the trader buys an option and it expires out of money, then the trader loses the amount of the premium.
For Seller (call or put) – If the trader is the seller of an option and it expires out of money, then like the buyer the seller gains.
Call Runs Out of Money
If Call Option expires out of money and the trader is a buyer then they lose the premium and commission fees incurred during the purchase. But if the trader is the seller and the Call option gets exhausted, then the trader will get credit that they have collected and the stock will also remain with the trader.
Put Option Runs Out of Money
If the put option expires out of money and the trader is a buyer then they lose the premium the purchase. But again if the trader is a seller then the trader will get the full amount as profit that will be received on selling the option.