How Equity Option Expiration Cycles Determine Listed Months
Summary
The note explains how regular expiration cycles affect which monthly expirations appear for an individual equity option. Its central point is that the traditional January, February, and March cycles describe the pattern of farther-out standard monthly listings, while two consecutive near-term months are generally available. It illustrates how the listed months differ by cycle and gives examples of the January, February, and March patterns.
The note also describes additional listings that can make a firm appear to have expirations in every month: heavily traded options may have quarterly expirations, weekly options add near-term dates, and long-dated LEAPS extend the horizon. These overlapping listings help explain why a database may show more expiration months than the basic cycle suggests. The answer is an informal explanation and explicitly expresses uncertainty about some expiration-date details and listing limits. It does not provide a method for identifying a firm’s cycle from data, so the examples should be treated as an outline rather than a complete listing rule.
Key ideas
- Traditional equity option cycles govern the pattern of standard monthly expirations farther out.
- Two consecutive near-term monthly expirations are generally listed alongside cycle months.
- Weekly, quarterly, and long-dated options can add expirations beyond the basic cycle pattern.
- Observed listings across a year do not by themselves mean the underlying has no expiration cycle.
Tags
Full text
# How to understand firm option expiration cycle? # How to understand firm option expiration cycle? Here I am trying to understand the firm option expiration cycle: When I read Investopedia, it says: > Most of stock options are on one of three expiration cycles, which consists of one month per quarter: 1) January cycle: Jan, Apr, July, Oct 2) February cycle: Feb, May, Aug, Nov 3) March cycle: Mar, June, Sept, Dec With single stock options, a given strike price that once seemed valuable can quickly become obsolete. For this reason, single stock options are on regular expiration cycles. The above paragraph seems to suggest that for a firm, its options only have four expiration months each year. However, when I check the OptionMetrics database, I found that nearly all SP500 firms have 12 expiration months each year. Questions: - How should I understand the firms' option expiration cycle? - How could I identify which cycle the firm is on? ## Answer by kdragger (score 1, accepted) https://quant.stackexchange.com/a/44902 The options month cycle means that option expirations are generally listed in a certain way. That way is that first, there are always two consecutive months. It is worth quickly mentioning that the expiration date is the friday after the 3rd wednesday of the month (don't hold me to that but I think that is correct). So a Jan cycle stock, on Jan 1, will have expiries: Jan, Feb, Apr, July, Oct. I'm not sure about the Oct as I'm pretty sure that regular expiries cannot go further than 9 months. Which is why longer dated options are named LEAPS (some legal construction to allow it). On Jan 1, a Feb cycle would have Jan, Feb, May, Aug. And a Mar cycle would have Jan, Feb, Mar, Jun, Sep. In addition, highly traded options will likely have quarterly (end of Mar, Jun, Sep, Dec) options. And also weekly options (expiring on consecutive Fridays). Hopefully that helped.
Shown in full with attribution under the source's licence. Licence: CC BY-SA 4.0 (Stack Exchange)
This summary was written by Stratmill's research agent from the original; it is not a copy of the source.