Probability of expiring is a measure of the likelihood of a stock or index being above or below a particular price on a specified date (expiration date). It does not take into account what will happen between now and that date. Stated another way, probability of expiring ITM is the likelihood of an option being ITM at expiration.
The more time remaining in the life of the option (days to expiration) or the greater the volatility in the stock, the higher the probability of expiring. Conversely, decreasing time or volatility also decreases the probability of expiring.
For example, suppose the Nov4 74 puts for XYZ have a 46.59% probability of expiring. This means that there’s a 46.59% likelihood that XYZ will be at or below $74 at Nov4 weekly expiration (fourth week of Nov). For the Dec1 weekly expiration (first week of Dec), the probability of expiring would be higher (48.05%) because there is more time remaining until expiration and higher implied volatility (26.97% vs. 24.73%) than there is for Nov4.
Probability of expiring is different than probability of touch.
Return to the main trading glossary page to learn more terms.
