Option Cycles

Call options are listed with an expiration in a specific month. Each stock with options trading against it will have call options listed on at least a quarterly basis. Some stocks start the quarterly turn in January, followed by April, July and October. Other stocks will start the cycle in February and others in March. Most stocks will also have an option contract listed for the next calendar month. For example, if a stock has option trading on the February, May, August, November cycle, after the May contract expires, options will start trading for the June expiration. Stocks with active option trading can have expirations every month.

Effects

Call options have a strike price, which is the price an option holder will pay for the underlying stock if the trader elects to exercise the contract. If the share price of the stock is below the strike price of the call option, the option is said to be out-of-the-money. If the share price is above the call option strike price, the option is classified as in-the-money. If a call option is OTM at expiration, the option will expire worthless.

In-the-Money Expiration

A call option that reaches the expiration date and is ITM will be automatically exercised. A trader who holds a call option that is ITM when the market closes on Friday will own the underlying stock in her account when the market opens on Friday. The trader must have enough money in the account to pay for stock. The trader who sold the call option must have the shares in his account to deliver to the option holder. If he does not have shares in the account, his broker will buy the shares on the open market when it opens on Monday and charge the cost to the trader’s account.

Considerations

References

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