What is Last Trading Day?
The last trading day is the last time traders may trade a derivative contract before it expires.
How Does Last Trading Day Work?
Derivative contracts (for example, options and futures) have an expiration date, at which time the terms of the contract become null. Holders must settle the contract through delivery of the actual asset or closing it out in cash. The last trading day on an option or futures contract is the day immediately preceding a contract's expiration date.
For example, suppose a futures contract has an expiration date of Thursday, September 22, 2011. The contract's last trading day would be Wednesday, September 21, 2011.
Why Does Last Trading Day Matter?
Investors typically use options and futures as hedging tools rather than as a way to accumulate the actual underlying assets. As a result, an option or future contract's last trading day represents an investor's final opportunity to sell the contract in the market and relinquish any obligation in connection with its terms.