Option Cycle

Definition

The term option cycle refers to three patterns that dictate when a commodity, currency, debt, index or equity option will expire. Rules established by the Chicago Board Options Exchange (CBOE) require each of these underlying assets to have four expiration months.

Explanation

Commodities, currencies, debt, indexes and common stocks that are traded as options will be assigned to a cycle, which is a predictable pattern of expiration dates for their contracts.  The CBOE requires each of these assets to be associated with a cycle that includes four expiration months.  The three most common cycles are those for equities:

  • JAJO:  which covers January, April, July and October
  • FMAN: which covers February, May, August and November
  • MJSD: which covers March, June, September and December

Options traded in any cycle will have contracts that expire in the current month and the subsequent month.  They will also have contracts that expire in two of the months in their cycle.  Options stop trading at the end of business on the third Friday of the month.  On the following Monday, the next option cycle will begin to trade.

Example

On January 10th, an investor would like to purchase a call option for Company XYZ, which is traded on the JAJO option cycle (January, April, July, October).  Expiration dates for Company XYZ, on the JAJO cycle would be:  January (current month), February (subsequent month), April and July (from the cycle schedule).

On February 10th, an investor would like to purchase a call option for Company XYZ, which is traded on the JAJO option cycle (January, April, July, October).  Expiration dates for Company XYZ, on the JAJO cycle would be:  February (current month), March (subsequent month), April and July (from the cycle schedule).

On March 10th, an investor would like to purchase a call option for Company XYZ, which is traded on the JAJO option cycle (January, April, July, October).  Expiration dates for Company XYZ, on the JAJO cycle would be:  March (current month), April (subsequent month), July and October (from the cycle schedule).

Related Terms

contract size, contingency order, condor spread, combination