04) Expirations

by · January 4, 2015

In this lesson we will be going over what expirations are and the different types of expirations.

There are 4 groups of expirations, Weekly’s, Monthly’s, Quarterly’s and LEAPs.

 

  • Weekly Expirations expire on the close of trading Friday of each week.  The choice for weekly expirations was introduced in October of 2005.  Currently only the most actively traded stocks have weekly expirations. 
  • Monthly (Regular) Expirations expire on the 3rd Friday of each month.  These are the most common type of expirations.  So, if a stock is optionable, at the very least they will likely have Monthly options available to trade.

 

    1. Quarterly Expirations expire on the 3rd Friday of every 3rd month of the year (March, June, September, December).  This type of expiration is currently only available for very actively traded ETFs such as SPY, QQQ, DIA, IWM and stock indices such as SPX.

 

  • LEAPS (Annual Expirations) : LEAPS is an acronym for Long-term Equity AnticiPation Securities.  These expire on the 3rd Friday of January of the next 2 years out.  So, for March of 2014 you could buy LEAPs for January of 2015 or January of 2016.

 

 

Which Expirations Should I Trade?

 

I would say that the answer to this is a question, “how long do you intend to hold onto this trade?”  I personally trade the weekly expirations for day trades and trade the monthly expirations at least 30 days away for swings trades (which are trades usually held for about 3-10 days).

 

If you’re planning to buy and hold the trade for a longer term, like say 6 months or more, I’d recommend trading the LEAPs.
There are many ways to use different expirations days to your advantage, even mixing different expirations together in the same trade.  However, those are beyond the scope of this lesson.  I’ll be sure to include them in the more advanced lessons.