Lessons from the Pros

1. The “January Cycle”, will always have options in three month increments – January, April, July, and October.
2. The “February Cycle” will always have options in three month increments – February, May, August, and November.
3. The “March Cycle” will always have options in three month increments – March, June, September, and December. 

For example, Yahoo (YHOO) stock has a January cycle. Look at the option chain below. 

From an earlier column, you will (or should) recall that options will always be available to trade in the current month AND in the following month. At this writing, September (2006) is the current month and October (06) is the following month. The current and following month options of any optionable equity are always available to be traded. Then, after the following month option (October 06), the next available month will be that of the assigned cycle (January 07). 

Note the red arrows. You will see that YHOO has October (06), January (07), and April (07) options available to be traded. But, what happened to July (07)? 

Never fear, July’s options will be available in October. An option will typically be opened by the market makers for trading nine months prior to its expiration. 

LEAPS 

There is another factor that comes into play – LEAPS. Many, but not all, stocks have these long term options. LEAPS will expire in January of the designated year. Look at the orange arrows on the option chain. You will see that the expiration of the LEAPS options are January 08 and January 09. No other options will be opened during 2008 – at least for now. Why? Because it is not nine months before the expiration of the options that would be opened. For instance, the April 08 option would open after the July 07 options expire. 

Equities that have LEAPS will always have LEAPS options available to be traded in January– whether they happen to be in the cycle or not. 

While we’re on the subject of LEAPS, note the blue arrows in our YHOO option chain. Those are the strike prices on the near term options – in $2.50 strike price increments. Normally, the $2.50 strike price increments stop at the $25 strike price. However, there are exceptions to the rule. With very liquid stocks, market makers can open up other strike prices ($27.50, $32.50, $37.50) if they feel there will be sufficient demand. Check out the blue arrows. 

The LEAPS are often opened “without” some of the strike prices. Check out the green arrows in January 08 and January 09. Notice that the $2.50 strike price increments are missing. They will become available as time passes and the market makers believe the demand for these options makes it worthwhile. 

To Make A Long Story Longer 

So, Dave, to answer your question . . . 

1. The options within a stock’s cycle have a life of nine months.
2. The options not in a stock’s cycle have a life of two months.
3. LEAPS have a life of as much as 2 ½ years.

Missed Any Columns? 

Hey, this is good stuff – especially if you’re serious about learning options. The Pulitzer people won’t likely be knocking at my door soon, but I’ve taught a lot of people how to conservatively and consistently make money – and they’re still making money to this day. I hope you’ll become one of them. 

So, if you missed any of my previous columns, click on the following link and, hopefully, they will magically appear. www.tradingacademy.com/newsletters.htm. 

Who Is This Guy? – 

Mike Parnos has “been there and done that” – plenty! Known as “Online Trading Academy’s Options Therapist,” Mike has been trading, consulting and teaching option strategies for over 12 years. Both individually, and through his writings, Mike specializes in teaching conservative and non-directional option strategies while providing therapeutic guidance to thousands of individuals, brokers and institutional traders. Over the years, he has learned from his mistakes, and the mistakes of others, and he’s here to share his wisdom with you. “Trading is as much psychological as it is skill,” says Mike. “Keep an open mind. You never know what might find its way in there.”