Expiration Cycle

An expiration cycle defines the predetermined schedule of dates upon which a series of derivative contracts will terminate. These cycles are established by exchanges to provide structure and liquidity to the market, allowing traders to roll positions from one maturity date to the next.

In options trading, these cycles may be monthly, quarterly, or even weekly, depending on the demand for specific hedging instruments. A well-defined expiration cycle helps in concentrating liquidity on specific dates, which facilitates tighter bid-ask spreads and more efficient price discovery.

When multiple contracts reach the end of their expiration cycle simultaneously, it can lead to increased volatility in the underlying asset as traders adjust or close their positions. Understanding these cycles is essential for anticipating market flow and managing portfolio risk effectively.

It organizes the chaotic nature of trading into predictable time intervals.