Option Expiration Cycles

Option expiration cycles are the standardized timeframes at which derivative contracts cease to exist and must be settled or exercised. In options trading, these cycles create intense liquidity concentration as traders roll positions, hedge existing delta exposure, or allow contracts to expire worthless.

The proximity to expiration often leads to gamma hedging activities, where market makers must adjust their underlying asset holdings to remain delta neutral. This creates predictable patterns in price movement, particularly as the spot price approaches key strike prices where open interest is high.

These cycles are critical for understanding how institutional participants manage risk and influence short-term price discovery. They serve as a primary mechanism for market makers to rebalance their books, impacting overall market volatility.