Dawn Pennington

Understanding Options Expiration

by Dawn Pennington   08/27/08

... February options available for RIMM. (Or, depending on when you're trying to make the trade, October and November may not be readily available either.)

Why is that?

Like most everything else, options have an expiration cycle. And just like any other cycle, it changes as it goes and expands as needed.

The expiration cycle is simply a sequence of dates on which the options of a particular security expire. All options (other than LEAPS, which are long-term options) are placed in one of three cycles: the January cycle (January, April, July, October), the February cycle (February, May, August, November), or the March cycle (March, June, September, December).

In the case of RIMM, you know that if there are September and December options available, that it falls into the March cycle.

Keep in mind that, as we are "cycling" through the year, that as months fall off of the old cycle, new months are added.

You may be wondering, though, why you can't just trade any option you want at any time you want. Hence why you can "roll" a position -- you may want to jump into a particular trade now, and you can always "roll out" to a later expiration month when it becomes available.

Believe it or not, there really is a method behind the madness!

When the options exchanges first opened, each stock was randomly assigned to one of three cycles -- there is absolutely no rhyme or reason to the assignments.

As options trading increased, floor traders, as well as some individual investors, preferred to trade for shorter terms, so the Chicago Board Options Exchange decided that all stocks would always have the current month plus the following month available to trade.

Further, every stock has at least four expiration months trading at any given time. Under those new rules, ...