Options Expiration Cycle

Expiration dates for options of a single underlying stock are offered on a predictable cycle. Every stock with listed options can be identified by the cycle to which it belongs, and these remain unchanged. There are three annual cycles:

  1. January, April, July, and October (JAJO).

  2. February, May, August, and November (FMAN).

  3. March, June, September, and December (MJSD).

In addition to these fixed expiration cycle dates, active options are available for expiration in the upcoming month.

For example, let's suppose that a particular stock has options expiring in the cycle month of April. In February, you may be able to trade in short-term options expiring in March (even though that is not a part of the normal cyclical expiration).

Expiration cycles for LEAPS options are quite different. All LEAPS contracts expire in January. At any given time, you can find an open LEAPS option for the next two January expiration dates and by mid-year a third one is also available. This means that you can keep a LEAPS contract open as long as 30 months (up to 2½ years) based on these cycles.

Smart Investor Tip

Some options traders use short-term options as speculative devices. Because they come and go more rapidly than the cyclical options, they often are overlooked as opportunities. For example, they can be used to temporarily protect longer-term short option positions.

An option's expiration takes place on the third Saturday of the expiration month. An order to close an open position has to be placed and executed no later than the last trading day before expiration day, and before the indicated expiration time for the option. As a general rule, this means that the trade has to be executed before the close of business on the Friday immediately before the Saturday of expiration; however, a specific cutoff time could be missed on an exceptionally busy Friday, so you need to ensure that your broker is going to be able to execute your trade in time to comply with the rules.

The last-minute order that you place can be one of three types of transactions. It can be an order to buy in order to close a currently open (previously sold) short position; an order to sell an existing long position to close; or an exercise order to buy or to sell 100 shares of stock for each option involved. If a last-minute exercise is made against your short position, the order is entered without your advance knowledge; you are advised of exercise and instructed to deliver funds (for an exercised call) or to accept and pay for shares (for an exercised put).


A Matter of Timing: You bought a call scheduled to expire in the month of July. Its expiration occurs on the third Saturday in that month. You need to place a sell order or an order to exercise the call (to buy 100 shares of stock at the striking price) before expiration time on the preceding Friday, which is the last trading day prior to expiration. If you fail to place either a sell or exercise order by that time, the option will expire worthless and you will receive no benefit.

With the pending deadline in mind and the unknown potential for a busy Friday in the market -- which can occur whether you place orders over the telephone or on the Internet -- you need to place that order with adequate time for execution. You can place the order far in advance with instructions to execute it by the end of business on Friday. If the brokerage firm accepts that order, then you will be protected if they fail to execute -- as long as you placed the order well in advance of the deadline.

Smart Investor Tip

Even though expiration time is the end of the trading day, it makes practical sense to place a last-day order well before that time -- and to place the order without restrictions. Only a market order will get executed, so specifying a desired price could prevent the order from going through.

By Michael C. Thomsett
Michael Thomsett is a British-born American author who has written over 75 books covering investing, business and real estate topics.

Copyrighted 2020. Content published with author's permission.

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