Expiration Friday – At Last

Expiration Friday.

Since the beginning of time (OK, the last 40 years we’ve had listed options), options expired on the Saturday following the 3rd Friday of the month.  Why Saturday?

Let’s take a walk to the way-back machine with Mr Peabody.   I was a floor trader at the CBOE and I am trading front-month options on the Friday of expiration.   My trading cards would have to be delivered to my clearing firm and key-punched (yes they were youngsters).  There would be a first pass Friday night where clerks would have unmatched trades (My acronym was KNY, a trader or broker selling me 5 calls might have written or his/her keypuncher might have inserted KMY).  The second pass early Saturday morning was where the problems were discovered – I was trying to buy puts and a broker was selling calls.  I thought I paid $2 and the other trader was selling at $2 1/4 ($2.25 for those into decimals). Traders would come to the CBOE in Chicago’s Loop Saturday morning and resolve “out-trades”, if any, in the expiring options.   The final resolution would be sent to the Options Clearing Corp (OCC) and cleared later Saturday morning, hence Saturday settlement.

Today the majority of our market makers are trading from computers somewhere in the world, and traders still on the trading floor use hand-held computers.  Everything is computerized.  Traders don’t have to do anything on Saturday (except what they are told by their spouse).

Weekly’s options now expire on Friday’s, but a few regular (3rd Friday) options are still Saturday settlement.  So why can’t Friday expiration options expire on Friday?  They will very soon.

The CBOE, other exchanges and the OCC are moving to a Friday expiration date for new series expiring after February 1, 2015, pending regulatory approval.  LEAPS will also be listed with a Friday expiration date.  When new Regular expiration (3rd Friday) options are listed, the new regular options listed have Friday as expiration.

What does this mean to you or me as investors using options?  Not much.  The only thing I want to keep an eye on is how my broker counts the number of days until expiration.  Is November expiration 62 days away or using Saturday, 63 days away?  I should know that, but don’t.

Additional information regarding the standard monthly option
expiration date move from Saturday to Friday can be found in:

CBOE Regulatory Circular RG12-135.

So in the very near future, a few straggling months with Saturday being shown as expiration will be gone, and Expiration Friday will be Expiration Friday.  mk