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Comment by keithwinstein | Hacker News Reader

I don't quite follow. Exchange-traded options are American-style options -- they can be exercised any day until the expiration date. Somebody who owns a call option @ $500 can exercise it profitably as long as the bid goes above $500 at any point before it expires. Why is the closing price on the last day so important?

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Because the option is almost always worth more to sell than to excercise, since the price of the option is the intrinsic value + the time value. The time value goes to zero as the expiration gets closer, where the intrinsic value depends on the price.

E.g., if you took an at the money (just at 0 intrinsic value) option for a year out, the price might be 20% of the strike price. That 20% will slowly fade over the course of the year. (Or possibly go up, if the volitility of the stock goes way up). If, in 6 months, your stock was in the money a bit, the option would still be worth more than the intrinsic value. (though, dividends can mess with that, and some people excercise options early to catch dividends)

Exactly. The expiration is the friday before the 3rd saturday of the expiration month -- which is quarterly. So calls and puts sold during the price run-up the last few months expired today.

That said, I don't really believe the manipulation story. Perhaps a small amount of market manipulation occurred, but it's not the reason AAPL is in a slump. For that, I think mental state and market sentiment are far far more powerful factors.

Quick correction here: AAPL has weekly, monthly and quarterly options.

Weeklies expire every friday (except on fridays when it is also a monthly expiry - the third friday of every month).

Quarterlies expire the last business day of march, june, september and december.

wiredfool is almost right except in the case for dividend paying stocks. It could prove profitable to exercise before expiry date if the investor thinks the company is going to raise dividend because option holders don't receive dividend.

Margin. It's always about margin.

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