28 Part I: Bask Properties of Stock Options 
l. Options expire on the Saturday following the third Friday of the expiration 
rrwnth, although the third Friday is the last day of trading. In general, however, 
waiting past 3:30 P.M. on the last day to place orders to buy or sell the expiring 
options is not advisable. In the "crush" of orders during the final minutes of trad- , 
ing, even a market order may not have enough time to be executed. 
2. Option trades have a one-day settlement cycle. The trade settles on the next busi­
ness day after the trade. Purchases must be paid for in full, and the credits from 
sales "hit" the account on the settlement day. Some brokerage firms require set­
tlement on the same day as the trade, when the trade occurs on the last trading 
day of an expiration series. 
3. Options are opened for trading in rotation. When the underlying stock opens for 
trading on any exchange, regional or national, the options on that stock then go 
into opening rotation on the corresponding option exchange. The rotation system 
also applies if the underlying stock halts trading and then reopens during a trad­
ing day; options on that stock reopen via a rotation. 
In the rotation itself, interested parties make bids and offers for each particular 
option series one at a time - the XYZ January 45 call, the XYZ January 50 call, 
and so on - until all the puts and calls at various expiration dates and striking 
prices have been opened. Trades do not necessarily have to take place in each 
series, just bids and offers. Orders such as spreads, which involve more than one 
option, are not executed during a rotation. 
While the rotation is taking place, it is possible that the underlying stock could 
make a substantial move. This can result in option prices that seem unrealistic 
when viewed from the perspective of each option's opening. Consequently, the 
opening price of an option can be a somewhat suspicious statistic, since none of 
them open at exactly the same time. 
Also, it should be noted that most option traders do not trade during rotation, so 
a market order may receive a very poor price. Hence, if one is considering trad­
ing during rotation, a limit order should be used. ( Order entry is discussed in 
more detail in a later section of this chapter.) 
4. When the underlying stock splits or pays a stock dividend, the terms of its options 
are adjusted. Such an adjustment may result in fractional striking prices and in 
options for other than 100 shares per contract. No adjustments in terms are made 
for cash dividends. The actual details of splits, stock dividends, and rights offer­
ings, along with their effects on the option terms, are always published by the 
option exchange that trades those options. Notices are sent to all member firms, 
who then make that information available to their brokers for distribution to 
clients. In actual practice, the option strategist should ascertain from the broker