Equity Option Cycles

[Jade Wayans]

Beginning options traders often are confused about the organization of
option chains. This paper covers the basic concepts surrounding which
options are available at any given point in time, and how that may
affect the options you trade.
Equity options always have options available for the current month and
the following month. In addition, two more months will be available;
but those two months will vary, depending upon which of three option
cycles your option falls within: the January, February, or March
quarterly cycles. For an option in the January cycle, Jan, Apr, July,
and Oct are the months that will be used; for the February cycle, the
months of Feb, May, Aug, and Nov are used; for the March cycle, the
months of Mar, Jun, Sep and Dec are used. So, in January, for an
option in the January cycle, the Jan and Feb options (current and next
months) will be available plus two additional months: Apr and July.
By contrast, an option in the February cycle will have the following
options available in January: Jan, Feb, May, and Aug. Similarly, an
option in the March cycle will have the following options available in
January: Jan, Feb, Mar, and Jun. We can illustrate how this works for
a year with an hypothetical company, XYZ, in the January cycle: In
January, the Jan and Feb options (current and next months) will be
available plus two additional months: Apr and July. In March, the Mar
and Apr options (current and next months) will be available plus two
additional months: Jul and Oct. In June, XYZ will offer the Jun and
July options (current and next months) plus two additional months:
Oct, and, since we have run out of months for the January cycle, we
add Jan. Since XYZ offers LEAPS options, a new LEAPS option is added,
and the nearest LEAPS option is converted to the January option with a
new ticker symbol.
For stocks without LEAPS options, the Jan option is added at that
time. The root of the ticker symbol, the first three letters, is
different for the LEAPS options; normally, the root of the short term
options will start with letters similar to the name of the company or
its stock ticker symbol. However, the LEAPS options will use a
completely different root to make the LEAPS ticker symbols stand out.
Index options are similar, but have some unique features. Most index
options offer the front month plus the next two months, plus three
more months from the March option cycle. However, several exceptions
exist, e.g., the OEX has four near months available plus one more
month from the March cycle.
In general, more months are available for index options because
institutional traders use these options to hedge large stock
portfolios. Check the web site of the exchange that produces the index
option of interest for the details of the months offered, e.g., see
the CBOE web site for SPX and OEX, but the ISE web site for MID, the
S&P Mid Cap 400 index.
This is probably more detail than needed by the average options
trader. The key information to keep in mind is that any equity options
chain will always have options available for the front month, next
month, and two additional months. Those additional months will vary
depending on the option cycle of which it is a member. A smaller
subset will also have the LEAPS options available.

100% Automated Artificial Intelligence Stock Picking Software -
http://stktourw.blogspot.com/#