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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:

  1. How should I understand the firms' option expiration cycle?
  2. How could I identify which cycle the firm is on?
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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.

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    $\begingroup$ For a speciic example look at the monthly options on NVDA. Currently the 2019 options listed are: Apr, May, June, Sep. Notice that there are no July, August, Oct, Nov, Dec options listed yet. These will be added as time goes on. The rules for adding new options as old ones expired are established by the CBOE. NVDA seems to be on the March cycle. $\endgroup$ – Alex C Apr 3 at 1:26
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    $\begingroup$ Thank you Alex. That is helpful. Now I see that as time goes on there would be new options added to make sure there are always two front months and two regular cycle months options. $\endgroup$ – SQL1118 Apr 3 at 14:12

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