Contracts expiring on the last business day of a calendar quarter, used mainly by funds that report and rebalance on quarter-end.
Quarterlies exist because index and ETF benchmarks are struck at quarter-end closes. A manager measured on the 31 March mark wants an option that expires on 31 March, not on the third Friday.
They are pm-settlement products in most cases, and their option-liquidity tends to be concentrated at round strikes near the index level, with very little elsewhere.
Example: a fund needs downside cover through quarter-end on a 5,000-level index. The March monthly expires 20 March and leaves seven business days uncovered. The quarterly expiring 31 March matches the measurement date exactly, which is worth paying a slightly wider bid-ask-spread for.
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.
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