What Is an Option Cycle?
Let me explain what an option cycle is—it's the set of expiration dates that apply to different classes of options. When a new option gets listed, it's assigned to a cycle randomly to spread out the options over various time frames. You might also hear it called an expiration cycle.
With just a few exceptions that offer contracts every month, most equity options fall into one of three cycles. If you know which cycle an option is on, you'll know when it can expire if you don't exercise it.
Key Takeaways
- An option cycle is the set of months on which a company's quarterly options expire.
- One of three cycle assignments is given to most options series when the stock is listed.
- Option volume and open interest are typically higher on options that expire on the dates of the assigned cycle.
How an Option Cycle Works
An option cycle covers the months available for a listed option class. These cycles are consistent across options and futures markets, and they're regulated by authorities. When you're looking at options, you'll typically view them by class, which groups calls or puts on a security.
Option classes separate calls from puts, and they're organized by strike price, listed in order by expiration.
Option Cycle Assignments
Options get assigned to one of three cycles when they're listed. Originally, cycles were based on four-month divisions, but in 1984, regulators decided to include the two front months for investors. Now, listings start with those two front months, followed by the next two in the cycle.
Here are the three option cycles you can find on public markets: JAJO for January, April, July, and October; FMAN for February, May, August, and November; and MJSD for March, June, September, and December.
Notice that the January cycle covers the first month of each quarter, the February cycle hits the middle month, and the March cycle takes the last month of each quarter.
If you're investing in an option, you'll see the first two front months plus the two remaining cycle months. This setup lets you trade or hedge short-term while also buying longer-term contracts.
Special Considerations
Keep in mind that for heavily traded stocks and index-tracking ETFs, the cycle matters less these days because of weekly options. With weeklies available, you can roll a quarterly option to expire any week of the year if you want to extend it.
You should also understand how cycles shift when a month passes. Each cycle always keeps the two front months. After a month goes by, the last two months stick to the original cycle. For example, in February, a cycle one option might offer February, March, April, and July. By June, it would be June, July, October, and January.
To figure out which cycle an option is in, check the third and fourth months. Generally, all options expire at 4:00 PM Eastern Time on the third Friday of their expiration month.
Less Common Expiration Cycles
Some options have contracts every month, but this is usually for highly liquid securities like ETFs on the S&P 500 or other indexes. These are often used for portfolio hedging, and since they represent a basket of stocks, the underlying security is more stable. That stability helps strike prices hold up, so more frequent expirations make sense.
Then there are Long Term Equity Anticipation Securities, or LEAPS, which are options with much longer terms—they expire every year in January, at least one year after you buy them. They're just like regular options otherwise, available as calls or puts on thousands of equities and select index funds. The main difference is the extended time before expiration.
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