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JAJO

The January, April, July, and October options cycle

What is JAJO (January, April, July, and October)?

JAJO is one of the three option cycles that comprise multiple options contracts with a successive expiration date in the months of January, April, July, and October. Options contracts come with expiration dates that fit in a cycle, which averages nine months. Each cycle comprises two near-term months plus two additional months from the quarterly cycles starting in January, February or March.

 

JAJO

 

Apart from the JAJO cycle, the other options cycles that an options contract can be assigned to in public markets include FMAN (February, May, August, and November) and MJSD (March, June, September, and December).

 

Summary

  • JAJO is an options cycle representing the months of January, April, July, and October.
  • The JAJO cycle is one of the three option cycles that comprise listed options with the same features and expiration date but different strike prices.
  • It also represents the first month of the four financial quarters in a year.

 

How Options Cycles Work

Options cycles refer to the period categories where options contracts are assigned. The cycles are integrated across all the derivative contracts such as options and futures contracts and are overseen by regulatory bodies. When buying options in the public market, a trader will view the available options according to the option classes.

An option class comprises multiple option series listings, which are grouped into either calls or puts. It means that an investor interested in buying call options on the underlying security will view multiple call option series listings, and each of these listings will have a specific strike price and expiration date. In the same way, a trader interested in buying put options will see the available listings, each with a unique strike price and expiration date. In the public market, option classes are listed alongside their strike prices and expiration dates within a specific cycle.

 

Assigning Options Contracts to Cycles

Before 1984, options cycles were divided by four months before the Chicago Board Options Exchange made a decision to revise the cycles to the current three cycles. It allowed each options listing to make the first two months available to investors followed by another two months in the cycle. The three main cycles include:

  • JAJO (1st Cycle): January, April, July, and October
  • FMAN (2nd Cycle): February, May, August, November
  • MJSD (3rd Cycle): March, June, September, and December

Options on the JAJO cycle comprise contracts available in the first month of each of the four quarters, i.e., January, April, July, and October. A trader interested in buying an option based on the underlying security must find the first two consecutive months, followed by two remaining months in the cycle. It allows investors the option of hedging for short-term contracts or buying long term contracts. For example, if XYZ $150 is assigned to the JAJO cycle in January, the first two months will be January and February, followed by April and July.

 

Option Contract Expiration Cycle

The expiration cycle refers to the expiration months of options contracts in each of the three cycles. Stock options are set up in one of the three main cycles that tell you the month when an option will expire. An option holder can exercise the option before or on the expiration date in order to recover any intrinsic value attributable to the option.

Exercising an option means buying or selling the underlying security at a strike price agreed at the start of the contract. If an option holder fails to exercise the option before the expiration date, the option will expire worthless, and the holder will not get any value out of it.

 

JAJO in Dividend Cycles

The JAJO cycle also applies to the dividend cycle, in that it stands for the four most important months for investors. JAJO represents the months of January, April, July, and October, which are the months when most companies declare dividends.

Usually, most companies release their earnings reports quarterly, and they also make a dividend declaration of an upcoming dividend payment. However, even with a dividend declaration, some shareholders may not be eligible, especially in companies with dividend preferences over several classes of stock.

 

Practical Examples of JAJO Option Cycle

Options traded in public markets usually follow their own designated cycles, and listings are available for the first two months followed by the next two months from the cycle schedule. For example, assume that ABC $100 call option is assigned to JAJO cycle in January. It means that the first two months will be January (current month) and February (subsequent month), followed by April and July from the cycle schedule.

Similarly, assume that ABC $100 put option is assigned to JAJO Cycle in February. The put will have the following listing: February (current month), March (subsequent month), April, and July. Each of the listings is considered an individual option series, and the four options offerings represent a full option cycle. Most exchange-traded option series listings expire on the third Friday of the expiration month.

 

Additional Resources

CFI is the official provider of the Financial Modeling and Valuation Analyst (FMVA)™ certification program, designed to transform anyone into a world-class financial analyst.

To keep learning and developing your knowledge of financial analysis, we highly recommend the additional resources below:

  • Dividend Policy
  • Expiration Date (Derivatives)
  • Option Pricing
  • Trading Mechanisms

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