Options expiration: understanding monthly and quarterly cycles

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As traders, it is vital to have a good understanding of how the market operates and the factors that affect it. One crucial aspect that often goes unnoticed by many traders is the monthly and quarterly cycle in options expiration. This phenomenon has a significant impact on trading strategies and can significantly influence investment decisions.

This article will explore everything traders need to know about options expiration cycles in Singapore, providing valuable insights and information to enhance your understanding and decision-making process.

Understanding the basics

Before delving into the monthly and quarterly cycles, it is essential to have a clear understanding of options expiration. Options contracts give traders the entitlement, but not the responsibility, to buy or sell underlying assets at a predetermined price within a specified time frame. The expiration date is when this contract expires, after which it becomes worthless.

In Singapore, options trading is regulated by the Monetary Authority of Singapore (MAS), ensuring a fair and transparent market for traders. There are two types of options available – American and European, with slight variations in their expiration cycles.

American options can be exercised before the expiration date, while European options can only be exercised on the expiration date itself. This difference has a significant impact on trading strategies and decision-making for traders.

Monthly options expiration cycle

In Singapore, monthly options expire on the third Thursday of each month. Therefore, all open positions must be closed before the market closes on this day. As a result, there is a significant increase in trading activity during this time as traders rush to close their positions.

The monthly cycle also has a significant impact on the pricing of options contracts. As expiration draws near, the time value of an option decreases rapidly, leading to increased volatility in the market. It can benefit traders who understand how to capitalise on this volatility but can also pose risks for those who are not well-informed.

With monthly expirations, traders can roll over their positions each month, allowing them to adjust their strategies according to market conditions. Experienced traders often utilise this flexibility to manage risk and maximise potential profits.

Quarterly options expiration cycle

In addition to monthly cycles, Singapore options trading also has quarterly expirations on the last business day of March, June, September, and December. These quarterly cycles coincide with the release of critical economic data such as GDP, inflation, and interest rate decisions.

Therefore, there is a higher level of volatility during these periods, making them attractive to traders who thrive in volatile markets. However, this also requires a thorough understanding of market trends and economic factors that can influence these cycles.

Traders must also know the quarterly expiration dates as they differ slightly from monthly options. It can affect trading strategies and decision-making, making it essential to stay updated on market news and events.

Impact on trading strategies

The monthly and quarterly options expiration cycles have a significant impact on trading strategies, as they provide insight into market sentiment and …

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