Last Trading Day

What is Last Trading Day?

As the name suggests, the last trading day meaning refers to the final day or last time the investor gets to purchase and sell the derivate before it reaches maturity. Note that the derivate contracts, such as the futures and options, come with a specific maturity period or an expiry date. As soon as they reach the expiration, the derivate contracts become invalid. It is important for the traders to close the contract through cash or by delivering the Underlying asset. The last trading day can be defined as the day before the expiry date of the derivate contract.

Let’s say the options contract will expire on September 3, 2020. Its last trading day would be a day before the expiration date, which is September 2, 2020. That means the option holder gets the last opportunity on the 2nd of September to sell their contract in the Market before it expires. If the contract expires and you do not trade it, then you will have to accept the assets’ delivery or settle the deal in cash. The last trading day is applicable to all types of derivative contracts, giving the security holders the final opportunity to trade the contract. The position is closed if the contract reaches maturity. For the derivative contracts that have no value, there is no requirement for the last day trading.

Derivate Contract Settlement

The security holder must go over the specification details of the option and future to find the expiry date of the contract. You could also find this information on the official website of the exchanges. Make sure you note the exchange settlement terms mentioned in the contract. As mentioned above, the contracts that are not being traded on the last trading day or are remained outstanding by the end of the day must be settled.

The settlement could be done by cash or delivery of the Underlying Asset. The contract can also be settled by the monetary payment or exchange of the investment instruments. Mostly, the contract is settled in the cash payment rather than the delivery of the physical commodity. Though the last trading day is a day before the contract expires, some derivate contracts allow the trader to sell the contract in the market on the expiry day.

Notice of the Last Day Trading

It is important for all types of future and options holders to note the expiry day and the last trading day of the contract. Fortunately, the future contracts involve the regular notifications that keep the trader up-to-date with the approaching last day trading date. You will get the notice at least 3-5 days before the expiration of the derivative contract.

Some contract involves multiple notices before the options or futures get expired. If you Fail to trade the contract in the market, you will get the notice for delivering the underlying asset. As mentioned before, some security holders might have to settle the deal in cash payments and the exchange of investment instruments.