The pattern by which exchanges list expirations for an underlying: near-term months always, then a fixed rotation of further-out months.
Historically each class was assigned to a January, February or March cycle, and exchanges listed the two nearest months plus the next two from the cycle. Heavily traded names now list far more, but thin names still follow the old pattern, which is why some stocks have a gaping hole between the front month and the next listed expiration.
This matters for calendar-spreads and diagonal-spreads: the structure you want may simply not exist on a given underlying.
Example: XYZ lists March, April, July and October. A trader who wants to sell 30 days and buy 90 days finds April and July but nothing in between, so the long leg is 120 days out and the spread's vega profile is far heavier than planned.
Original diagrams for the ideas on this page. Illustrative, not real market data.
The bid-ask spread. Buy orders sit below, sell orders above, and the gap between the best bid (50.01) and best ask (50.04) is the spread you pay to cross. Bar length shows the size resting at each price.Time decay of an option's value. The part of an option's price that is only time — its extrinsic value — drains away every day and must reach zero at expiry. The slide is gentle months out and steepest in the final weeks, which is what traders call theta.
Educational only, not advice. Spotted an error? Post in Site Feedback.