Expired Options: Understanding Lapsed Options

March 20, 2025 06:21 PM AEDT | By Team Kalkine Media

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Highlights

A lapsed option is an option contract that loses all value after its expiration date.

It occurs when the holder does not exercise the option before expiry.

Lapsed options result in no financial gain, making them worthless post-expiry.

A lapsed option refers to an options contract that has expired without being exercised. In financial markets, options give the holder the right, but not the obligation, to buy or sell an asset at a predetermined price before a set expiration date. If the holder does not act on the option before this deadline, it becomes worthless, effectively lapsing.

Options typically lapse when they are out of the money at expiration, meaning the market price does not favor execution. For example, if a call option allows the purchase of a stock at $50 but the market price is only $45, exercising it would not be beneficial. As a result, the option expires with no value.

Lapsed options are common in trading and are an inherent risk for option holders. While buyers risk losing their initial premium paid for the option, sellers (writers) may benefit if the option expires worthless, allowing them to keep the premium as profit. This mechanism plays a key role in the functioning of options markets.

Conclusion

A lapsed option represents a contract that has lost all value upon expiration. It highlights the importance of timing and market conditions in options trading, emphasizing the risks and opportunities in derivative markets.

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