What Does Expiration or Expiry Mean?

The expiration or expiry of a binary option, spread, or other option is the date and time when the option is converted into cash or (with some other options) an underlying asset.

What is Expiration or Expiry?

The underlying market price at expiration is called the settlement price. If the settlement price is above the strike price of the binary option, the binary is settled for $100. If it is at or below the strike price, the binary settles at zero. 

Derivatives have expiration dates

Some investments don’t expire. You can own gold for the rest of your life and pass it on to your heirs. You can own stocks for as long as the company is in business. Most other financial instruments, like futures contracts or options or binary options or spreads have an expiration date.

Such derivatives cannot be traded after their expiration. Your position is either cash settled, meaning you get some amount of money in exchange for your derivative contract, or the underlying asset is actually made deliverable to you.

Settlement and delivery facts and myths

Options on futures contracts have expirations, too. If your option expires in the money, you may exercise it or it may even be exercised for you and you will then have a futures contract which is approaching a later expiration date.

Contrary to an old myth, you won’t get 40,000 pounds of corn actually delivered to you if you hold a corn futures contract (or corn binary option) until expiration. With the futures contract, you’d get a receipt giving you ownership of some corn in a silo somewhere.

With a Nadex binary option or spread, you get cash at expiration. In the case of a binary option, you'll get either $100 or $0. When a spread expires, you'll receive your profit or loss in the form of a credit or debit to your account balance. All Nadex contracts are cash-settled derivatives.  

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