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It's taught that out-of-the money options that expire at the end of the last trading day expire worthless yet I see many expired options in trading hours that hold their value and continue to trade. Shouldn't they become worthless with a bid and ask price of zero?

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  • If the options that you are looking at are ITM, you may be looking at closing quotes. Are you sure that they are actively trading? Equity options cease trading at 4:00 PM EST. Index options and some ETF options trade until 4:15PM EST on expiration day. If not looking at them, please indicate what contracts you are observing. Mar 2 '20 at 22:31
  • @BobBaerker I was watching the SPY contracts, could that be the reason? Even so, why do ETF contracts continue on trading?
    – RaniFaris
    Mar 2 '20 at 22:32
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    Please note the following options will trade from 9:30 a.m. ET to 4:15 p.m. ET: DBA, DBB, DBC, DBO, DIA, EEM, EFA, GAZ, IWM, IWN, IWO, IWV, JJC, KBE, KRE, MDY, MNX, MOO, NDX, OEF, OIL, QQQ, SLX, SPY, SVXY, UNG, UUP, UVXY, VIIX, VIXY, VXX, VXZ, XHB, XLB, XLE, XLF, XLI, XLK, XLP, XLU, XLV, XLY, XME, XRT Mar 2 '20 at 22:35
  • @BobBaerker oh Alright got it, thank you so much I appreciate the help, have a good night :)
    – RaniFaris
    Mar 2 '20 at 22:37
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There will only a bid or ask price of zero if an exchange participant or one of their customers wishes to buy or sell at that price. Furthermore, most options exchange API interfaces do not allow bids or asks at zero in regular option contracts. Perhaps $0.01 or $0.05 but not zero.

Furthermore, it is possible that a market participant could sell an out-of-the-money option at $0.01 and between the time the market closes and the final exercise deadline at 5:30 pm Eastern (though earlier in practice) something could happen (e.g. an earthquake).

As a result, other market participants may not be willing to buy and sell at such a low price - the risk and administrative overhead may not be worthwhile.

The timeline:

  • 4:00pm Regular US listed options finish trading.
  • 4:15pm Index-based options and ETFs finish trading.
  • 5:00pm CBOE Global Trading Hours options finish trading (VIX, SPX)
  • 5:30pm Final OCC exercise (or contrary exercise) deadline.
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Your question is a favorite dessert of the algos running just after 4:14:01 . I can only answer to the 1 strike OTM which they will hold back from touching until just after the cutoff for most of the unsuspecting populous. These OTM options hold value into the settlement period that follows because SPY is actually higher or lower than the last prices that are printed seconds into 4:14 ...they already know well in advance (around 3:00pm...or on low volume days 9:32am), what the 4:14 SPY close is going to be. This allows ample time to ensure that the ATM option in the future (4:14) is primed to not be to hot or cold ...so the OTM I previously mentioned will be maybe .01 at 4:14:01 ....but after that during settlement it can be worth much more and will be acted on...but only by the key players. The argument surrounding this practice of intentionally blocking daytime traders from profiting off this intentional holdback is frequently countered by the plausible deniability explanation, that in some way the market Close is unpredictable, and these overwhelming number of settlements are just running late, and they are just trying to catch up is absurd.

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