The last day of a contract, hour by hour

Expiration is a date, but the events happen at specific times, and the ones that matter to a seller are packed between the closing bell and the following Monday's open. Here's the sequence for a standard equity option expiring on a Friday.

4:00 pm Eastern: trading stops

Most equity options stop trading at 4:00 pm on expiration day. A few broad ETFs and indexes trade until 4:15. After that you can no longer buy back or roll. Whatever you're short at the close is what you're short.

Brokers get nervous ahead of this. If you're short an option that's in the money and the account can't support assignment, not enough cash for the shares on a put or no shares to deliver on a call, many brokers' risk desks will close the position for you during the afternoon, at the market, without asking. If you'd rather control the exit, do it before they do.

The official close: exercise by exception

The OCC works from the underlying's official closing price. Any option in the money by $0.01 or more is exercised automatically unless the holder instructs otherwise. Your $45 put with the stock closing at $44.99 is assigned. Out of the money by a penny, it expires worthless, unless someone decides otherwise.

4:00 to about 5:30 pm: the window

Holders can submit instructions to their broker after the close: don't exercise an in-the-money option, or do exercise an out-of-the-money one. Each broker sets the cutoff, commonly somewhere between 4:30 and 5:30 pm Eastern. The reason anyone exercises an out-of-the-money option is after-hours trading. If the stock closed at $45.20 and drops to $44.50 on a 4:30 announcement, a $45 put holder can buy shares at $44.50 in the after-hours market and put them to you at $45. From your side, an option that expired worthless at 4:00 has become an assignment by 5:30, and you had no way to act.

Pin risk

The stock closes at $45.02 and your strike is $45. Some holders will exercise, some won't, and you won't know which until morning. If you hedged in the last minute by buying shares because you expected assignment, you might now own 200 shares or none. The only clean escape from pin risk is not to be short a near-the-money option at the close. Close it, roll it, or accept that Friday night is a coin toss.

Saturday: the notice

Assignments process overnight and appear in accounts on Saturday or early Monday, depending on the broker. You now own shares bought at the strike, or your shares are gone, and the position sat through the weekend's news. A stock assigned at $45 on Friday opens wherever it opens on Monday.

Index options and morning settlement

Cash-settled index options like SPX don't deliver shares; they settle to a cash amount. The monthly SPX contracts are AM-settled: they stop trading on Thursday and settle to a value built from Friday's opening prices of the index components. That opening print can differ sharply from Thursday's close, which has surprised sellers who thought they were safely out of the money. The weekly SPX contracts are PM-settled to Friday's close. Know which one you're holding.

The practical rule

If you don't want shares, don't be short an in-the-money or near-the-money option at 4:00 pm on Friday. Close it during the day, where you can see the price and pick the moment. Expiration afternoon is the one time in an option's life when the decisions are made by other people after you can no longer act.