Exchange Traded Options

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These days, most stocks and exchange-traded funds have available put and call options. This opens up a multitude of choices for different options strategies, many of which we have discussed in this column.

This vast number of available options may be bewildering for new traders. Options on indexes and on currencies and futures differ slightly. There are several different non exchange traded options expiration date, or series, of option expirations: Here are the main features of the various series. These have been offered for the longest time — sincewhen listed options were first traded.

Non exchange traded options expiration date Monthly options expire on the third Friday of the calendar month. The following table is from the website of the Options Industry Council, the trade group for the options industry:. The exchanges list options on a given security according to one of the following expiration cycles: At any given time, there are at least four different expiration months trading on a particular security. Recent exchange rules now allow for the listing of additional months beyond just four available expirations, so there are deviations from standard non exchange traded options expiration date procedures.

Today is December 22, The December monthly expiration was last week, on December 18, which was the third Friday in December. We know that there will be some expirations listed that fall in these months. So our stock would also have options that expire in January and in February, the two near-term expiration months, even though those two months are not part of its cycle. So the February options would only have appeared on the option chain for this stock on Monday, December 21, right after the December options had expired on the previous Friday.

The February options will thus have a total lifespan of just two months. The rest of that rule reads: The last sentence of the rule reads: Here is the option chain for the stock of General Electric GE. The rules, as stated above, would account for the options shown at left for January, February, March, and June of In addition, there are also options that expire in January and January The purpose of LEAPS is to allow investors to hedge or speculate over longer periods than just a few months.

Despite that imposing name, they are simply regular options that, at the time they are first listed, expire in a future year. They are usually but not always set to expire in January of a future year. Other than their long lifespan, they are no different from any other monthly option. This makes no difference at all in its behavior.

There are, however, others we have not displayed yet, including:. For GE, turning on the display of quarterly options results in a chain that looks like this:. The sole change is that now the Quarterly options for December 31, are shown as the first line on the chain. Note that if the quarter end fell on a date that would have been a regular monthly expiration date anyway, the option with that date would have been labeled as a monthly option.

The special quarterly option for the same date would non exchange traded options expiration date have been added, as it would have been redundant. Quarterly options can be useful for portfolio managers who rebalance their portfolios at quarter ends, so that their option positions can be made to coincide with these dates. Anyone is free to use the quarterly options, of course. The last set of regular options are the weeklies. These expire on Fridays that would not otherwise be the expiration date for any other monthly, LEAPS or quarterly options.

Not all stocks that have options have weeklies. They are offered on a stock if the exchanges and option market makers believe there would be a market for them. Originally, weekly options appeared on a Thursday and expired eight days later on Friday of the following week.

Recently, exchanges have been offering multiple weekly options so that at any given time there is an expiration of some type on each of the next six Fridays. When a future Friday comes into the six-week window, if there is not already another monthly, quarterly or LEAPS option that expires on that non exchange traded options expiration date, it is added as a weekly. Turning on the final setting on our option chain, which is to display the weekly expirations, the full chain of expirations non exchange traded options expiration date GE looks like this:.

Now that we have described all of the possible expirations, the next step is to set out some guidelines for deciding which expirations are most suitable for a given purpose. This is because that spread is a cost to us. The monthlies have by far the most volume and open interest and, therefore, non exchange traded options expiration date smallest bid-ask spreads.

There are other considerations that are even more important non exchange traded options expiration date selecting expiration dates and strikes which we will discussion next time. These short articles can only hit the high spots in the fascinating world of options. For a real education, contact your local center about our Professional Option Trader program. Disclaimer This newsletter non exchange traded options expiration date written for educational purposes only.

By no means do any of its contents recommend, advocate or urge the buying, selling or holding of any financial instrument whatsoever.

Trading and Investing involves high levels of risk. The author expresses personal opinions and will not assume any responsibility whatsoever for the actions of the reader. The author may or may not have positions in Financial Instruments discussed in this newsletter. Future results can be dramatically different from the opinions expressed herein. Past performance does not guarantee future results.

Reprints allowed for private reading only, for all else, please obtain permission.

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