What Is FMAN?

FMAN refers to one of three regular options contract expiration cycles, representing February, May, August, and November. Option cycles refer to a pattern of months in which options contracts expire

Every options series nowadays has at least four expiration months trading. Under the current rules, the first two months are always the two near months, but for the two further-out months, the rules use the original cycles such as with FMAN.

Key Takeaways

  • FMAN is one of three expiration cycles, referring to options that expire in February, May, August, and November.
  • The other two are JAJO (January, April, July, and October) and MJSD (March, June, September, and December). 
  • Traders holding an options contract have until expiry to either exercise the option or close the trade by taking an offsetting position to realize any loss or profit.

How FMAN Works

FMAN is the second standard options expiration cycle. The other two are JAJO (January, April, July, and October) and MJSD (March, June, September, and December). 

The expiry date is typically the third Friday of the expiry month. That third Friday is the last day traders can exercise the option. If the third Friday falls on a holiday, then the Thursday's expiration date is before the usual Friday expiry.

Investors seeking to invest in an option will find the first two front months followed by the two remaining cycle months. This provides the opportunity for investors to trade or hedge for shorter terms as well as buy longer month contracts.

It should be noted that nowadays the cycle is less important for heavily traded stocks and index-tracking exchange-traded funds because of the publication of weekly options. Since weekly options are available to be traded, an investor that wants to extend their expiration date can roll a quarterly option to any given week of the year.

It is also important for investors to understand what happens to a cycle when a month passes. Each cycle will always have the two front months available. After a month passes the last two remaining months continue to follow the originally assigned cycle. For example, in February the FMAN cycle would have option availability in February, March, May, August. In June, the cycle one option availability would instead be June, August, November, February.

When Options Expiry

Options have a limited life, meaning they cease to exist beyond the expiration date. Traders holding the option have until expiry to either exercise the option or close the trade by taking an offsetting position to realize any profit or loss.

Exercising refers to taking the associated position in the underlying asset. For example, when a call option expires, the call buyer has the choice of letting the option expire worthless and forfeiting the premium paid or exercising the option and thus buying the underlying asset at the strike price specified by the options contract. Before expiration, they can sell the option for any intrinsic value and time value it may have.

Out-of-the-money (OTM) options are not automatically exercised and are allowed to expire worthless.

An option writer, or the seller of the option, receives the premium when the buyer buys the option. If the option expires worthless, then the seller keeps the whole premium. If the option expires in-the-money, the seller must provide the underlying shares to the option buyer at the strike price. The option writer may also close out the position by taking an offsetting position before expiry, thus realizing either a loss or a partial gain on the premium received.

Special Consideraitons

Brokers may automatically exercise in-the-money options at expiry on behalf of the option buyer. Traders can request that options are not automatically exercised. For example, the trader may not have the capital to buy the underlying stock.

In this case, they may not want to be exercised, but they should close out the option position before expiration to lock in any gains they are entitled to (the difference between the current option price and the purchase price).

Even though the out-of-money option is technically worthless, the option holder may contact the broker requesting the option be exercised (if desired). This may be worthwhile if the option is near-the-money, and the underlying stock has limited liquidity. In this case, the option allows the trader to position the underlying for the position size associated with the options (typically 100 shares each).