Understanding Options Expiration
by Dawn Pennington 08/27/08
... the first two months are always the nearest two months.
Let's look at how this works using the January cycle as an example. There is always the current month plus the following month available, so there will be January and February options for all optionable securities. But because there must be options available for at least four months, the next two months from the original cycle would be April and July. Thus, the stock will have options available in January, February, April and July.
What happens when the January options expire? Because the February options are already trading, February simply becomes the spot-month (or, next-month) contract. Since the next two months of options must be available after an expiration Friday, March will begin to trade on the first trading day after the January expiration date, which makes February, March, April and July the four months available at that time.
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But then, it gets a little tricky.
Once the February options expire, March becomes the current contract. The following month, April, is already trading. But with March, April and July contracts trading, there are only three expiration months available. To create the fourth, ...
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