Last Trading Day

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What is the last day of trading?

The last trading day is the last day on which a futures contract, or other derivatives with an expiration date, can be traded or liquidated before delivery of the underlying asset or cash settlement is required. take place. At the end of the last trading day, the contract holder must be ready to accept delivery of the goods or to pay in cash if the position is not closed. The same concept applies to option contracts. The last trading day is the last chance to close the position, otherwise the underlying will be delivered if applicable. If the option is worthless, it does not need to be closed, it will simply expire.

Key points to remember

  • The last trading day is the last trading day of a derivative contract. As a general rule, the last trading day is the day before the expiration date.
  • Expiration dates are provided in the contract specifications for a given derivative contract. The contract specifications can be found on the exchange’s website.
  • Futures contracts not closed on the last trading day will be subject to delivery and / or payment in cash.
  • Option contracts not closed on the last trading day must provide or take delivery of the underlying asset. There is no need to enter into worthless contracts.

Understanding the last trading day

The last trading day is the day before the derivative expires. On the expiration date, the derivative is no longer negotiable and the settlement process begins. Suppose the expiration date of an option contract is Friday, March 22. The last operation is Thursday March 21.

The last trading day is the last day on which a futures contract can be traded or closed. Any contract in progress at the end of the last trading day must be settled by the delivery of the underlying physical asset, the exchange of financial instruments or by the agreement of a monetary settlement. The specific agreements covering these potential results are contained in the specifications of the futures contracts and vary according to the titles.

In general, most futures involve an exchange of financial instruments or a cash settlement rather than a delivery of the physical commodity, as most market participants hedge or speculate.

The last trading day of an option is the day before the expiration date. Option holders on the expiration date will be required to deliver or receive the underlying, if applicable. Worthless options will expire and will not need to be closed.

If an option buyer holds a position in the money, he will receive shares and will have to put the capital and / or margin to buy / sell these shares. The option seller must provide these shares.

For certain derivative contracts, trading is authorized on the expiry date until a certain time of the day. In this case, the last trading day is the expiration day.

Information on the last trading day

Traders can find expiration dates in their derivative contract or by consulting various exchange websites for details on settling standard transactions. The exchanges will have a web page that lists all of their futures and options and their settlement dates and times.

Some of the most popular futures and options markets in North America include:

  • CME Group
  • Intercontinental exchange
  • Montreal Stock Exchange
  • Chicago Board Options Exchange

The last trading day is important for investors as it allows them to close the contract before expiration. Futures contracts also have several days notice which provide the investor with details of the settlement approach. The days of notice may vary by contract, the first day of notice often being three to five days before the last trading day.

If an investor’s contractual position is not closed before the last trading day, he must proceed with the delivery. Subsequently, they will receive delivery notices and will have to arrange for the final delivery of the underlying assets.

Example of the last trading day of a futures contract

Suppose a speculative futures trader buys a gold futures contract with an expiration date of August 27, 2020, the last trading day of which is August 26, 2020. If the trader does not sell the contract before the end from the day of August 26, the contract must be settled by the delivery of the underlying asset. Most contracts also include a cash settlement option which exempts both parties from the physical exchange of the underlying assets.

On the other hand, suppose that a food production company buys orange juice futures with an expiration date of July 13, 2020. It can choose to take physical delivery of the orange juice since it can package and sell it to customers or stores. After expiration, the production company would receive a delivery notice and would be required to make arrangements for the receipt of the orange juice. If they did not want to physically take delivery, they would have to close the position on the last trading day, which in this case is July 12, 2020.

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