The following is an excerpt from Introduction to the Mathematics of Finance by Roman:
The last trading day of an option is the third Friday of the expiration month and the option actually expires on the following Saturday. Every stock option is on one of three expiration cycles, which consists of one month per quarter, equally spaced 3 months apart, but starting at different months:
1) January cycle: Jan, Apr, July, Oct
2) February cycle: Feb, May, Aug, Nov
3) March cycle: Mar, June, Sept, Dec
If the expiration date for the current month has not passed, then there exist options that trade with expiration dates in the current month, the next month and the following two months of the cycle for that underlying. If the expiration date for the current month has passed, then there exist options that trade for the next month, the month after that and the following two months in the cycle.
For example, IBM is on the January cycle. At the beginning of January, there are options that expire in January, February, April and July. Late in January, there are options that expire in February, March, April and July. At the beginning of May, options expire in May, June, July and October.
I don't understand the paragraph in bold. Is it a rule for the expiration dates? Would anybody explain the IBM example? I totally don't understand where are those months from.