Options Calendar

by Jay Pestrichelli on October 1st, 2013

Often we are asked why monthly returns don’t always line up with what we refer to as our monthly trades. The answer lies within the mis-alignment of the option calendar and a normal calendar. Here’s an excerpt from chapter 16 of our book that I think helps explain the difference:

There are many different Optionexpiration periods—weekly, monthly, quarterly, and annually. However, the most widely used Options are the ones that expire monthly. Monthly Options expire on the Saturday following the third Friday of the month. Yes, this is as convoluted as figuring out what Sunday will be Easter or what week Election Tuesday falls on.
Options don’t trade on Saturday, so the last day to trade these before expiration is the Friday before the Saturday expiration date. And there are exceptions to this rule (as with all things on Wall Street), such as index Options.
As strange as all this seems, brokers make this rule easy to figure out by noting how many days are left before expiration in the quotes or positions list. Figure 16.1 illustrates this timing. The time of expiration is clearly stated in the Option symbol. For the monthly Options it is usually denoted as the month and year. For example, an Option with a SEP13 designation for expiration means that the Option will expire on the Saturday following the third Friday of September 2013. SEP13 is certainly easier to say.
The monthly Option periods begin as soon as the previous month ends. If the SEP13 Option period ends on the Saturday following the third Friday of the month, the OCT13 period begins the following Monday. Yes, that is still in September, but it is considered the October Option period because that is when the Options will expire.
For illustration purposes, here’s the OCC’s option calendar.

Why bring this up today? The answer is as we just finished the 3rd quarter and unless you were holding quarterly expiration options for September, you’ve got positions that overlapped with the end of the month. That means that the performance for the current positions will get marked based on the prices as of yesterday’s close. And if those positions had a bullish bias, they probably had a bad day. So don’t be too discouraged about day-to-day changes or that the quarterly performance of your portfolio may have underperformed your expectations. As investors that have a discipline, don’t fret the mechanics of calendar mis-alignment. Just keep on hedging!

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