Deciding to trade a stock option requires choosing an expiration month. Because option strategies require making modifications during the life of a trade, you need to know in what months the options will expire. The expiration month you choose will have a significant impact on the potential success of any option trade, so it is important to understand how the exchanges decide what expiration months are available for each stock. At any given time, there are at least four different expiration months available for every stock on which options trade. The reason for this is that when equity options first started trading instock Chicago Board Options Exchange CBOE decided there would be only four does wherein options could be traded at any given time. Later, when long-term equity anticipation securities LEAPS were introduced, it was possible for options be traded for more than four months. For background reading on options, see the Options Basics Tutorial. Not All Stocks Trade the Same Options You may have noticed that not all stocks have the same expiration months available. Let's look at the expiration months available from September for three different stocks:. MSFTCitiGroup NYSE: C and Progressive NYSE: SeptOctJanAprilJan and Expire SeptOctNov and Feb SeptOctDecJanMarJan and Jan The first thing you may notice is that all three have September and October options available. Next, both Microsoft and CitiGroup have options available in JanuaryJanuary and Januarywhile Progressive does not. When then it gets more confusing. For the stock month out, not one of the months matches those for any of the other two. And CitiGroup has an extra month trading: Exactly how do the exchanges decide what expiration months should be available for each stock? To answer that question, you need to understand the history of how the exchanges have managed the option expiration cycles. When stock options first began trading, each stock was assigned to one of three cycles: January, February or March. There is no meaning as to which cycle a stock was assigned - it was purely random. Stocks assigned to the January cycle had options available only in the first month of each quarter: January, April, July and October. Stocks assigned to the February cycle had only the middle months of each quarter available: February, May, August and November. Stocks on the March cycle had the end months of each quarter available: March, June, September and December. The Modified Expiration Cycles As options gained in popularity, it soon became apparent that both the floor traders and individual investors preferred to trade or hedge for shorter terms. So the original rules were modified, and inthe CBOE decided that every stock would always have the current month plus the following month available to trade. This is why all three of the stocks when the above example have September and October options options. Every stock has at least four expiration months trading. Under the new rules, the first two months are always the two near months, but for the two farther-out months, the rules use the original cycles. It may help to look at an example. Let's say it is the beginning of Does, and we are looking at a stock assigned to the January cycle. Under the newer rules, there is always the current month does the following month available, so January and February will be available. Because four months must trade, the next two months from the original cycle would be April and July. So, the stock will have options available in January, February, April and July. What happens when January expires? February is already trading, so that simply becomes the near-month contract. Because the first two months must trade options, Stock will begin to trade on the first trading day after the January expiration date. So the four months now available are February, March, April and July. Now comes the tricky part: The following month, April, is already trading. But with March, April and July contracts trading, that's only three expiration months, and we need four. So, we go back to the original cycle and add October because it is the next month in the January cycle after July. So the March, April, July and October options will now be available. The same reasoning determines what months are trading for stocks on the February and March cycles. Adding LEAPS If a stock has LEAPS available, then more than four expiration months will be available. Only the most popular stocks have LEAPS available. That is why in our example above, Microsoft and CitiGroup had them while Progressive did not. For background reading on LEAPS, see Using Options Instead Of EquityUsing LEAPS With Collars and Using LEAPS In A Covered Call Write. Once you understand the basic option cycle, adding LEAPS is not difficult. LEAPS are long-term options that, with some exceptions, are no more than three years out and usually trade with a January expiration date. If a stock does have LEAPS, then new LEAPS are issued in May, June or July depending on the cycle to which the stock is assigned. When it is time to add or go beyond January in the normal rotation not including the current or near-term contract expire, the January LEAPS that has been "hit" becomes a normal option, which also means the root symbol changes and a new LEAPS year is added. Let's go back and look at our original examples and walk through stock happened to Microsoft and CitiGroup. For Microsoft we go back to May of The months available for Microsoft then were MayJuneJulyOctoberJanuary and January Once the May options expired, another month needed to be added. The two front months, June and July, were already trading, as was the next month in the cycle: So, following the rules for the January cycle, we would need to add the January expiration month. For a stock that did not have LEAPS, no further action would be necessary, and it would trade the four months of June, July, October and January But Microsoft already had LEAPS trading that expire in January So, instead those were converted to standard options with an accompanying symbol changeand January LEAPS were added. Nothing out of the ordinary happened to CitiGroup when the Options options expired, since it is on the March cycle. June was already trading, so only the month of July had to be added. After the Expire expiration, CitiGroup now traded the months of June, July, September and December, plus LEAPS in January and But let's follow through what happens after the June expiration. For the regular options, July, September and December were already trading, so all they needed to do was add the second front month: But for March cycle stocks like CitiGroup the January Options converted to standard options after the June expiration date, and the January LEAPS were introduced at the same time. So, on the Monday after the June expiration, CitiGroup had options trading in July, August, September, December and Januaryas well as LEAPS in January and January Cycle-three stocks follow the same procedure, whereby the LEAPS convert to regular options after the July expiration date, and the LEAPS are added. How Can You Tell What Cycle a Stock Is On? You cannot tell what cycle a stock is on by looking at the front two months: To figure out the cycle, you need to look further out at the third and fourth months. You can usually tell from the third expiration month available. Just keep adding three months to the expire month until you reach January, February or March. CitiGroup has December as the third contract monthso if we add three months we arrive at March. We therefore know that CitiGroup is on the March cycle. That said, you have to be does if the third month out happens to be January. While that may indeed mean the stock is on the January cycle, any stock with LEAPS will also have January options trading. In that case, you need to look farther out to see what the fourth month is to confirm what cycle the stock is on. In the above example, Microsoft has April available, so we know for sure that it is on the January cycle. Conclusion Option-expiration cycles for stocks may seem a bit confusing, but if you take a little time to understand them, they become second nature. Because you may need to make adjustments during the life of a trade, it can be very important to know what expiration months will become available in the future. Understanding the expiration cycles is just one more way to help you increase your success rate when trading options. Dictionary Term Of The Day. A statistical technique used to measure and quantify the level of financial risk Latest Videos PeerStreet Offers New Way to Bet on Housing New to Buying Bitcoin? This Mistake Could Options You Guides Stock Basics Economics Basics Options Basics Exam Prep Series 7 Exam CFA Level 1 Series 65 Exam. Sophisticated content for financial advisors around investment strategies, industry trends, and advisor education. Stock Option When Cycles By Jim Graham Share. Let's look at the expiration months available from September for three different stocks: Options are always speculative, but When provide a longer time frame, which may make them more profitable. The rewards of using LEAP call options can be a lower cost of capital, higher leverage and no risk of margin calls. Weekly and quarterly options were introduced to give a greater choice of option expirations to investors, and enable them to trade more efficiently. Learn more about stock options, including some basic terminology and the source of profits. Learn how to multiply returns and diversify risk by buying options instead of stock. Take a look at a study that discovered that three out of every four options expired worthless. Discover the option-writing strategies that can deliver consistent income, including the use of put options instead of limit orders, and maximizing premiums. Investing in long-term call options can lead to a huge payoff if they are used right. The use of options has increased dramatically over the years as a way to profit from or hedge against the volatile movements A LEAP long-term equity anticipation security is a call or put option that allows the buyer a long-term expiration on the Holding an option through the expiration date without selling does not automatically guarantee you profits, but it might A statistical technique used to measure and quantify the level of financial risk within a firm or investment portfolio over Net Margin is the ratio of net profits to revenues for a company or business segment - typically expressed as a percentage A measure of the fair value of accounts that can change over time, such as assets and liabilities. Mark to market aims A simple, or arithmetic, moving average that is calculated by adding the closing price of the security for a number of time An investment that is not one of the three traditional asset types stocks, bonds and cash. 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