If you’re a trader who primarily trades in U.S.-based markets, it’s essential to be aware of this distinction when looking at options expirations schedules overseas. Otherwise, you could be unexpectedly out of a trade because your option expired while sleeping, which can have severe consequences for your portfolio. So, ensure to do your homework and check expiration dates carefully before placing any trades abroad.
In this article, we’ll take a closer look at how options expiration works in the United Kingdom and some of the critical considerations for traders looking to trade options in this market. If you would like to start trading listed options, you can do so with Saxo Capital Markets.
When do options expire in the United Kingdom?
In the United Kingdom, options typically expire at 10:00 a.m. GMT on the third Friday of every month. However, there are some exceptions to this rule. For example, if the third Friday is a bank holiday in the United Kingdom, the expiration will be moved to the Thursday before.
It’s also vital to note that unlike in the United States, where all options contracts expire at 4:00 p.m. EST on the third Friday of every month, not all options contracts in the United Kingdom expire simultaneously. There are three different expiration times for options contracts in the United Kingdom:
- 10:00 a.m. GMT
- 11:30 a.m. GMT
- 12:00 p.m. GMT
The expiration time you’ll see listed on your options contract will depend on the underlying asset you’re trading. For example, contracts for stock options will typically expire at 10:00 a.m. GMT, while contracts for options on indices will expire at 11:30 a.m. GMT. And finally, contracts for options on futures will expire at noon GMT.
Critical considerations for trading options in the United Kingdom
Now that you have a better understanding of how options expiration works in the United Kingdom let’s look at some of the critical considerations you need to be aware of before placing any trades.
First and foremost, it’s important to remember that when you place an options trade in the United Kingdom, you’re essentially placing two trades: one for the option itself and one for the underlying asset. It is because all options contracts are settled in cash, meaning that at expiration, you will either receive or pay out the difference between the strike price and the current market price of the underlying asset.
For example, let’s say you buy a call option on ABC plc with a strike price of £10, and the stock is currently trading at £11.50. If ABC plc shares rise to £12 at expiration, then your option will be in the money, and you will receive a payout of £1 per share, or £100 total. However, if the stock falls to £10.50 at expiration, your option will expire out of the money, and you will lose your initial investment.
It’s also important to remember that unlike in the United States, where options contracts can be exercised on any day up until expiration, in the United Kingdom, options contracts can only be exercised on the last trading day before expiration. So if you’re looking to close out your position before expiration, you’ll need to do so on the Thursday before expiration.
Finally, it’s worth noting that due to the time difference between the United Kingdom and the United States, trading hours for options in the United Kingdom are two hours behind U.S. trading hours. So if you’re looking to trade options on a UK-based asset, you’ll need to do so during U.K. trading hours, which run from 8:00 a.m. GMT to 4:30 p.m. GMT.
How to start options trading?
If you’re interested in trading options, there are a few things you need to do first.
First, you need to find a broker that offers options trading in the United Kingdom, and then you should filter out brokers you have chosen by finding one that suits your needs the best in terms of fees, expertise, management style, platforms offered, and more.
Once you’ve found a broker that meets your needs, you’ll need to open and fund an account with them. This process will vary depending on the broker, but typically you’ll need to provide some personal information and documents and make a deposit into your account.
Finally, once your account is open and funded, you’ll need to choose the underlying asset on which you want to trade options. There are many different assets you can trade options on, including stocks, indices, and futures. Once you’ve chosen an asset, you’ll need to decide what type of option you want to buy and what strike price you’re looking for.