Definition of Option Cycle
An Option Cycle refers to the scheduled expiration dates for options assigned to certain months, allowing a broad distribution of options across various time frames. It’s also known as an expiration cycle. Most equity options are typically organized into one of three cycles, which dictate when the options can expire if they are not exercised.
Key Points:
- An option cycle includes the specific months in which a company’s quarterly options contracts may expire.
- Each stock is assigned to one of these three option cycles when its options are listed, creating a predictable pattern for traders.
- Option volume and open interest are generally higher for options that expire on the established dates within the assigned cycle.
| Option Cycle | Another Similar Term |
|---|---|
| Scheduled expiration dates | Expiration cycle |
| Organized into three cycles | Expiry dates |
Examples:
- Standard Option Cycle: If a stock is assigned to the January, April, July, and October cycle, its options will expire on these months as per the set schedule.
- Non-standard Option Cycle: Some stocks like ETFs might have options that expire monthly without adhering to the three-cycle rule.
Related Terms
- Open Interest: The total number of outstanding options or futures contracts that have not been settled.
- Exercise Date: The date on which an option can be exercised.
- Strike Price: The price at which a specific option can be exercised.
flowchart TD
A[Option Cycle] --> B[Expiration Dates]
A --> C[Option Volume]
A --> D[Open Interest]
B --> E[Monthly Expiry]
B --> F[Quarterly Expiry]
Humorous Insight:
“Investing in options is like gambling… if your options expire worthless, at least you’ll have a good story to cry over while watching a sad movie!” 🎬😢
Funny Quotation:
“Options are like my ex—just when I think they’re lost, they pop up again to remind me of their expiration date!” 🤣
Fun Fact:
Did you know? The first U.S. options exchange opened in 1973, paving the way for options trading today. It was also around the same time when disco pants made their grand entrance—talk about a fashion statement! 🕺👖
Frequently Asked Questions:
Q1: How many option cycles are there?
A1: Most equities are organized into three cycles, distributing expiration dates accordingly.
Q2: What happens if I don’t exercise my options before expiration?
A2: If not exercised, options generally expire worthless, leaving you with less than a penny’s worth of regret!
Q3: Can option cycles change?
A3: Thankfully, option cycles are predetermined but rejoice—unlike middle school, you won’t have to change lockers!
References for Further Reading:
Test Your Knowledge: Option Cycle Challenge
Thank you for diving into the enlightening world of option cycles! Remember, when trading options, ensure to enjoy the ride—just not much like roller coasters! 🎢
