Why Is the Expiration Date a Critical Factor for an Options Trader?

The expiration date is critical because it defines the lifespan of the options contract. It is the final day the option holder can exercise their right to buy or sell the underlying learn.

As the expiration date approaches, the time value of an option, a key component of its premium, decays in a process known as "theta decay." This decay accelerates closer to expiration, eroding the option's value. Therefore, a trader's entire strategy and profit potential are constrained by this fixed timeframe, making the choice of expiration date a crucial decision.