Options cycles refer to the standardized, recurring schedule of expiration dates for derivative options contracts, which typically occur monthly or weekly, facilitating liquidity and predictable trading activity across a range of strike prices and maturities. These cycles structure the derivatives market by providing regular termination points for contracts.
Mechanism
Exchanges define specific calendar months for option expiry, creating a sequence of available contracts. For instance, an asset might have options expiring in January, February, March, and April, with new cycles added as older ones expire. This system ensures a continuous offering of short-term and longer-term contracts. Pricing models adjust for time decay (theta) as contracts approach their respective expiry dates within these cycles.
Methodology
Traders utilize options cycles to construct strategies that align with their market outlook and time horizon, ranging from short-term directional bets to long-term volatility plays. Institutional participants leverage the predictability of these cycles for systematic hedging, income generation through selling premium, and managing exposure to specific market events. Understanding these cycles is fundamental to effective options trading and risk management, particularly in volatile digital asset markets.
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