Most Traders Pick the Wrong Expiration. Here Is the One Simple Rule That Fixes It Every Time

Añadido: 2026-06-01

[00:00:00]What's up, everyone? Mike here with another episode of Options in Action. If you haven't seen this yet, we're basically taking old whiteboard videos, looking at concepts and strategies in real time with the tasty trade platform, and giving it kind of a more advanced edge to it. So, we've talked about call options, put options, options premium.

[00:00:20]So far, we're talking about expirations today. So, options expirations are pretty self-explanatory. It's when your option either expires out of the money and loses it's all of its extrinsic value, or it expires in the money and either has intrinsic value or not. So, looking at different options expirations, I think is pretty easy in terms of like how I approach it now.

[00:00:46]I look at different things and I analyze different strategies, but almost always, I'm going to the monthly expiration cycles.

[00:00:55]And there's a reason for that. If we look at the tasty platform here, we can see that the platform does a really good job of organization in terms of shading different colors. So, the darker shades that you're seeing here with the W on the left-hand side is the weekly expiration. We're looking at Salesforce right now. They have earnings after the close.

[00:01:15]And then the lighter shades have different colors there, and that is for the regular monthly expirations. Another really nice thing, if you're trading futures, is the futures expirations are super well organized as well. So, futures contracts have different contracts that have different prices.

[00:01:35]So, for example, the E-mini S&P 500 M contract, the M6, you can see the last price here, 7527.

[00:01:44]All of these options expirations settle into this last price, the M. When you see a new last price here, 7587, that signifies a new contract for the S&P 500 e-mini futures futures contract here. So, the ESU6. So, really great expiration organization here where you can see if you're trading calendar spreads or diagonal spreads within this M contract, they all settle to this contract itself. So, 21 days out, you all they're all going to be trading in this M6 contract and you can see this lift listed here on the left side as well. And then on the U contract, we got a bunch of expirations here. But, going back to CRM, I think when it comes down to it, almost always I'm trading the monthly regular monthly expirations, which are the third Friday of every month. And the main reason for that is that's where the liquidity is, right? You have plenty of people trading this, whether it's a retail or institution, doesn't matter. You can see there's plenty of open interest and volume within these expirations here. And if I change this one to volume, you can see thousands of contracts traded today.

[00:03:01]Salesforce isn't the most widely, you know, traded company, but they do have earnings, which is keeping it nice and active today. But, one thing I wanted to point out with different expirations is if I'm trading a regular strategy like, you know, 30 to 60-day strategy, I'm going to go to the monthly cycle. I wouldn't get hyper-fixated on 45 days or, you know, 35 days, whatever your trading strategy is. I'd much rather be in a 50-day cycle, a little bit further out in time that's a regular monthly versus going to the 36-day. And we can see this here if we just look at the bid-ask spread on the 170 strike.

[00:03:40]You've got about a 45-cent wide bid-ask spread here, not too great. But, when you go to like the July 2nd and you look at the same strike, this is now a a dollar twenty bid ask spread. So, not only does it get a lot worse in terms of width between the bid and ask spread, which means you don't really know where you can trade this in the middle, it's going to have a hard time getting filled at a fair price here. You only have 12 open contracts and 17 have traded today in this 36-day cycle where the 170 strike in the 22-day regular monthly contract is a 30 cent 40 cent wide bid ask spread, but you've got 10,000 open contracts, 700 traded today. So, much more liquid and you're going to see this across the board. If you're sticking with the regular monthly cycles, you're doing yourself uh a service in terms of making sure you're sticking with the liquidity of that market and giving yourself a fair chance at a nice uh mid price fill if you're getting in and out of trades quickly and easily.

[00:04:42]The next thing I want to talk about here is uh the difference in implied volatility versus time value when you break down extrinsic value. So, it doesn't matter what you look at. It could be an E-mini futures market, it could be CRM that has earnings today, it could be Apple that doesn't have earnings for a couple months. You're going to see much more implied volatility value in the near-term cycles relative to the back month cycles. And And Salesforce here is a great example.

[00:05:09]So, $14 implied move for earnings, only two days to go. All of this extrinsic value that you're looking at here is basically implied volatility extrinsic value cuz there's only two days left, right? There's no time value associated with this this options expiration. After the earnings announcement, all of this premium that's far out of the money is going to go to zero. Uh that's not necessarily the case for a 50-day cycle or an 80-day cycle or a 114-day cycle. You can see there is, even though the implied volatility is lower in these further dated cycles, you're looking at 51%, 50%, you've got 24 points in July, 30 points of an implied move in August, 36 in September.

[00:05:53]So, I really like that you can see the extrapolated implied range based on the time in the expiration and the implied volatility reading. It really helps you understand that you've got way more implied volatility value in the 2-day cycle relative to July or August. So, when I'm strategizing using expirations, and again, this is a a heightened example because we have earnings after the close where if Salesforce did not have earnings, maybe this would only be like a two or three point implied move relative to 20 in July. But, you've got so much implied volatility value here, 146% IV and a 14-point implied move. If I'm strategizing, and let's say I'm trying to buy Delta further out in time, the further out in time I go, the lower the implied volatility is and the less implied volatility contraction I'm going to be at the mercy of for this earnings announcement. So, if you're buying options, I always like to say you get what you pay for. If you're buying options in a near-term cycle, you're buying super high implied volatility value, not great for long-term success. If you are buying further out options that have a lower implied volatility reading and much more time associated with them, much a higher probability of success there because you've got 2 months, 3 months, 4 months for you to have that directional move if you're trying to have that trade work out in your favor.

[00:07:17]So, buying options, I'm almost always going to be past this 50-day cycle, closer to 80 if I can do it, unless I'm doing, you know, a near-term earnings strategy where I'm selling a 2-day, buying a 9-day, something like that. But, earnings trades, that's really the only exception in terms of where I'm not going to a monthly cycle. That's really what I'm getting at here is if I'm selling or trading an in a weekly cycle, it is almost always because I'm trading earnings. Otherwise, I'm going to June or July or August because that's where the liquidity is and even if you look at something like Apple that doesn't have earnings for quite some time, you can see much lower implied volatility across the board, but you still have a heightened implied volatility value in a 22-day versus a 51-day. If we look at the 300 strike put, for example. So, the June cycle has 22 days to go. The July cycle has 51 days to go.

[00:08:21]June has less than half of the time remaining on the expiration cycle, but the option price is not less than half.

[00:08:31]And that's really where you get to see the heightened implied volatility in the near term relative to the longer term.

[00:08:38]So, again, June at 22 days with a $3 premium here at the 300 strike, and then you go to the 51-day, more than twice the amount of time, it's not twice the amount of premium here.

[00:08:51]You You should be seeing something a little bit more if if these implied volatilities were similar or linear, I should say. So, again, implied volatility super high in the near term cycles and then it trails off pretty dramatically as you get further out in time. The further out options expirations are going to have a lot more time-based extrinsic value compared to the near term ones and I'm always strategizing around that with diagonal spreads, calendar spreads, crab trades, what have you. Uh so, yeah, I think really expirations pretty simple, but I'm almost always sticking with the monthly cycles unless it's a binary event that I'm trading like an earnings announcement. Those earnings announcements and binary events that might not be earnings announcements are still going to bring more and infuse more liquidity into those near-term weekly cycles. But other than that, I'm sticking with the monthly's, keeping it simple, going where the liquidity is, so I have narrow bid ask spreads, and managing the trades from there. Let me know how you're trading these options expirations though.

[00:09:54]I really like the organization on the tastytrade platform, especially for futures, because futures options settling to different contracts can be a little confusing unless you're looking at the tasty platform where you have it nice and organized. But let me know in the comments below. Please like this video, subscribe to tastytrade live, and we'll see you on the next episode of Options and Action.