Option Series: Meaning and How It Works
An option series is the set of option contracts on the same underlying security that share both the same strike price and the same expiration month. Call and put options are grouped into separate series; for example, all call contracts on Company X with a $50 strike that expire in June form one call option series.
Key points
- An option series groups options by underlying security, strike price, and expiration month.
- Calls and puts belong to separate series (a call series is distinct from a put series at the same strike and expiration).
- Each listed option contract typically represents 100 shares of the underlying.
- Exchange-traded option prices within a series should be very similar, though market factors can create differences.
- Listings are organized by option class (all calls or all puts for a given underlying) and by option cycle.
How option series are organized
- Option class: All calls (one class) and all puts (another class) for a given underlying. Within each class you’ll find many series, each defined by strike and expiration.
- Option cycles: Exchanges assign underlying securities to one of three option cycles, which determines which expiration months are initially listed:
- Cycle 1 (JAJO): January, April, July, October
- Cycle 2 (FMAN): February, May, August, November
- Cycle 3 (MJSD): March, June, September, December
Example: If XYZ’s $110 call is in cycle 3, listings in January might include XYZ $110 Jan, XYZ $110 Feb, XYZ $110 Mar, and XYZ $110 Jun. Most listed series for standard options expire on the third Friday of the expiration month.
Clearing and counterparty risk
Exchange-traded options are backed by clearing organizations that guarantee contract performance in the event of counterparty default. The Options Clearing Corporation (OCC) is the principal clearinghouse in U.S. markets, reducing counterparty risk for public options traders.
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Pricing, volatility, and trading opportunities
- Theoretical pricing models (e.g., Black–Scholes) provide benchmark values, but real-market prices can and do diverge due to volatility, liquidity, bid-ask spreads, and supply/demand imbalances.
- Volatility phenomena (such as volatility smiles) and market stress can amplify mispricings across series.
- Traders and arbitrageurs may exploit price disparities within and between series, especially when trading in larger blocks vs. single contracts.
- Many deviations are small and may not be profitable for retail traders after transaction costs; sophisticated participants typically capture most arbitrage opportunities.
Practical considerations for traders
- Understand contract size (typically 100 shares) and how that affects capital requirements and risk.
- Check liquidity (open interest and bid-ask spreads) before trading a series—thin markets increase execution costs and slippage.
- Be aware of expiration timing, assignment risk (for short options), and how exercise affects underlying positions.
- Learn option pricing drivers—underlying price, strike, time to expiration, implied volatility, interest rates, and dividends—to identify meaningful mispricings.
Summary
An option series is a fundamental organizing unit in option markets—grouping contracts by underlying, strike, and expiration. While prices within a series should be comparable, market conditions, liquidity, and volatility create opportunities and risks. Traders should combine an understanding of option structures, cycles, clearing protections, and pricing mechanics before attempting strategies that rely on series-level mispricings.