change Traded Fund
Symbol
Type
PowerShares Dynamic Market PortfolioPowerShares Dynamic OTC PortfolioPowerShares Dynamic Large Cap Growth Intellidex IndexPowerShares Dynamic Large Cap Value Intellidex IndexPowerShares Dynamic Mid Cap Growth Intellidex IndexPowerShares Dynamic Mid Cap Value Intellidex IndexPowerShares Dynamic Small Cap Growth Intellidex IndexPowerShares Dynamic Small Cap Value Intellidex Index
PWCPWOILHILWILJILPILKILZ
Broad basedBroad basedLarge capsLarge capsMid capsMid capsSmall capsSmall caps
Source: PowerShares Capital Management
As of publication date, only PWC and PWO are traded.
4339_PART2.qxd  11/17/04  1:02 PM  Page 46
46
CREATE YOUR OWN HEDGE FUND
iShares  are  open-ended  mutual  funds  and  reinvest  dividends  on  a  dailybasis. Thus, iShares are fully invested at all times, whereas UITs accumu-late a cash position. This is not a significant difference and becomes im-portant only when the market makes a strong move in either direction fora sustained period. When such a sustained move does occur, the UIT lagsbehind the iShares in a strongly rising market, but compensates by declin-ing slightly less rapidly in a falling market.
Table 6.4A lists the broad-based iShares, and Table 6.4B lists the sector
iShares.11
TABLE 6.4A Broad-Based iShares
Exchange Traded Fund
Symbol
Exchange Traded Fund
Symbol
iShares S&P MidCap 400iShares S&P MidCap 400/
BARRA Value
iShares S&P MidCap 400/
BARRA Growth
iShares S&P SmallCap 600iShares S&P SmallCap 600 
BARRA Value
iShares S&P SmallCap 600 
BARRA Growth
iShares S&P Global 100 
IJH
IJJ
IJKIJR
IJS
IJT
Index Fund
IOOISIiShares S&P 1500 Index FundIVEiShares S&P 500 BARRA ValueiShares S&P 500IVViShares S&P 500 BARRA Growth IVWIWBiShares Russell 1000IWDiShares Russell 1000 ValueIWFiShares Russell 1000 GrowthIWMiShares Russell 2000IWNiShares Russell 2000 ValueIWOiShares Russell 2000 GrowthiShares Russell MidCap Growth 
Index Fund
iShares Russell MidCap Index 
Fund
iShares Russell MidCap Value 
Index Fund
WP
IWR
IWS
Source: Barclays Global Investors
iShares Russell 3000iShares Russell 3000 ValueiShares Russell 3000 GrowthiShares Dow Jones US Total 
Market
iShares Morningstar Large 
Core Index
iShares Morningstar Large 
Growth Index
iShares Morningstar Large 
Value Index
iShares Morningstar Mid Core 
Index
iShares Morningstar Mid 
Growth Index
iShares Morningstar Mid Value 
Index
iShares Morningstar Small 
Core Index
iShares Morningstar Small 
Growth Index
iShares Morningstar Small 
Value Index
iShares NYSE 100 Index FundiShares NYSE Composite 
Index Fund
iShares S&P 100 Index Fund
IWVIWWIWZ
IYY
JKD
JKE
JKF
JKG
JKH
JKI
JKJ
JKK
JKLNY
NYCOEF
4339_PART2.qxd  11/17/04  1:02 PM  Page 47
Exchange Traded Funds
47
TABLE 6.4B Sector iShares
Exchange Traded Fund
Symbol
Exchange Traded Fund
Symbol
iShares Nasdaq BiotechnologyiShares Cohen & Steers Realty 
Majors
iShares Dow Jones US UtilitiesiShares Goldman Sachs Natural 
Resources
iShares Goldman Sachs 
Technology
iShares Goldman Sachs 
IBB
ICFIDU
IGE
IGM
Networking
IGNiShares Goldman Sachs Software IGViShares Goldman Sachs 
Semiconductor
IGWiShares S&P Global Energy Sector IXCiShares S&P Global Financial 
Sector
iShares S&P Global Healthcare 
Sector
iShares S&P Global Information 
Technology Sector
iShares S&P Global Telecom-
munications Sector
IXG
IXJ
IXN
IXP
Source: Barclays Global Investors
iShares Dow Jones US Consumer 
Cyclical
iShares Dow Jones US EnergyiShares Dow Jones US Financial 
Sector
IYCIYE
IYF
iShares Dow Jones US Financial 
Services
IYGiShares Dow Jones US Healthcare IYHiShares Dow Jones US Industrial IYJiShares Dow Jones US Consumer 
Non-Cyclical
iShares Dow Jones US Basic 
Materials
iShares Dow Jones US Real 
Estate
iShares Dow Jones Transpor-tation Average Index Fund
iShares Dow Jones US 
Technology
iShares Dow Jones US 
Telecommunications
IYK
IYM
IYR
IYT
IYW
IYZ
International ETFs All foreign-country ETFs operate as iShares (open-ended mutual funds). These ETFs are mostly based on stocks of one for-eign country, but a few represent broad-based indexes. Table 6.5 presentsthe list of international ETFs.
VIPERs Vanguard  index  participation  receipts  (VIPERs)  are  ETF  ver-sions of different Vanguard index funds and are structured as open-endedfunds. Table 6.6 lists the VIPERs.
Sector SPDRS ETFs are available to track many of the popular broad-based indexes. For those investors who prefer to concentrate their holdingsin a much narrower group of companies, a group of ETFs is available thattracks the performance of stocks in each of several specific industries.
A group of ETFs that owns shares in only one specific sector of themarket is known as sector SPDRs. These ETFs operate as open-ended mu-tual funds.
4339_PART2.qxd  11/17/04  1:02 PM  Page 48
48
CREATE YOUR OWN HEDGE FUND
TABLE 6.5 International ETFs
Exchange Traded Fund
Symbol
Exchange Traded Fund
Symbol
iShares MSCI-Emerging Markets EEMEWAiShares MSCI-AustraliaEWOiShares MSCI-AustriaEWKiShares MSCI-BelgiumEWZiShares MSCI-BrazilEWCiShares MSCI-CanadaEFAiShares MSCI-EAFEEZUiShares MSCI-EMUEWQiShares MSCI-FranceEWGiShares MSCI-GermanyEWHiShares MSCI-Hong KongEWIiShares MSCI-ItalyEWJiShares MSCI-JapanEWMiShares MSCI-MalaysiaEWWiShares MSCI-MexicoEWNiShares MSCI-Netherlands
Source: American Stock Exchange
EPPiShares MSCI-Pacific Ex-JapanEWSiShares MSCI-SingaporeEZAiShares MSCI-South AfricaEWYiShares MSCI-South KoreaEWPiShares MSCI-SpainEWDiShares MSCI-SwedenEWLiShares MSCI-SwitzerlandEWTiShares MSCI-TaiwanEWUiShares MSCI-U.K.IEViShares S&P Europe 350ILFiShares S&P Latin America 40ITFiShares S&P/TOPIX 150Fresco DJ Stoxx 50 IndexFEUFresco DT Stoxx 50 Euro Index FEZstreetTracks DJ Global Titans 
Index Fund
DGT
TABLE 6.6 VIPERs
VIPER
Vanguard Materials VIPERsVanguard Small-Cap VIPERsVanguard Small-Cap Growth VIPERsVanguard Small-Cap Value VIPERsVanguard Consumer Discretionary VIPERsVanguard Consumer Staples VIPERsVanguard Financial VIPERsVanguard Information Technology VIPERsVanguard Health Care VIPERsVanguard Mid-Cap VIPERsVanguard Utilities VIPERsVanguard Total Stock Market VIPERsVanguard Value VIPERsVanguard Growth VIPERsVanguard Large-Cap VIPERsVanguard Extended Market VIPERs
Source: American Stock Exchange
Symbol
VAWVBVBKVBRVCRVDCVFHVGTVHTVOVPUVTIVTVVUGVVVXF
4339_PART2.qxd  11/17/04  1:02 PM  Page 49
Exchange Traded Funds
49
TABLE 6.7 Sector SPDRs
Exchange Traded Fund
streetTRACKS Morgan Stanley Technology Index FundstreetTRACKS Wilshire REIT Index FundSelect Sector SPDR-MaterialsSelect Sector SPDR-EnergySelect Sector SPDR-FinancialSelect Sector SPDR-IndustrialSelect Sector SPDR-TechnologySelect Sector SPDR-Consumer StaplesSelect Sector SPDR-UtilitiesSelect Sector SPDR-Health CareSelect Sector SPDR-Consumer Discretionary
Source: American Stock Exchange
Symbol
MTKRWRXLBXLEXLFXLIXLKXLPXLUXLVXLY
Table 6.7 lists the sector SPDRs.
Grantor Trusts
Grantor trusts are the least common type of ETF and are represented byHOLDRs.
HOLDRs A group of ETFs collectively known as HOLDRs—an acronymstanding  for  holding  company  depositary  receipts  (pronounced  “hold-ers”)—represent  ownership  in  the  common  stock,  or  ADRs  of  specifiedcompanies in a particular industry, sector, or group.
HOLDRs are trust-issued receipts (also known as grantor trusts). Thereare two big differences between grantor trusts and the other types of ETFs.The first is that grantor trusts represent the investor’s undivided beneficialownership in the underlying securities, and the trust maintains the under-lying shares on behalf of the investor. Thus, any corporate action under-taken by an underlying security, such as a spin-off or merger, is treated asif the investor owned the underlying shares directly. Shareholders also re-tain voting rights on the underlying stocks.
The  second  big  difference  is  that  HOLDRs  represent  a  true  buy-and-hold  philosophy  because  they  are  never  rebalanced.  Thus,  over  time,HOLDRs can become a nuisance to own if it becomes overweighed in onespecific stock (losing the advantages of diversification) or contains minutequantities of shares resulting from spin-offs. This is not a reason to avoid
4339_PART2.qxd  11/17/04  1:02 PM  Page 50
50
CREATE YOUR OWN HEDGE FUND
TABLE 6.8 HOLDRs
Exchange Traded Fund
Symbol
Exchange Traded Fund
Symbol
Biotech HOLDRsBroadband HOLDRsB2B Internet HOLDRsEurope 2001 HOLDRsInternet HOLDRsInternet Architecture HOLDRsInternet Infrastructure HOLDRsMarket 2000+ HOLDRsOil Service HOLDRs
BBHBDHBHHEKHHHHIAHIIHMKHOIH
Pharmaceutical HOLDRsRegional Bank HOLDRsRetail HOLDRsSemiconductor HOLDRsSoftware HOLDRsTelebras HOLDRsTelecom HOLDRsUtilities HOLDRsWireless HOLDRs
PPHRKHRTHSMHSWHTBHTTHUTHWMH
Source: American Stock Exchange
HOLDRs, but it makes holding them less convenient for investors who wantto  know  exactly  what  they  own.  To  avoid  the  problems  associated  withowning HOLDRs, an investor can choose to own shares of a sector SPDR (ifthe appropriate one exists).
Merrill Lynch issued the first of the HOLDRs in 1998.12Table 6.8 lists all HOLDRs.
Miscellaneous ETFs
A few ETFs that operate as open-ended mutual funds but do not fit into anyparticular category are listed in Table 6.9 as miscellaneous ETFs.
TABLE 6.9 Miscellaneous ETFs
Exchange Traded Fund
StreetTracks Global Titans Index FundStreetTracks US Small Cap Growth Index FundStreetTracks US Small Cap Value Index FundStreetTracks US Large Cap Growth Index FundStreetTracks US Large Cap Value Index FundFidelity Nasdaq Composite FundRydex S&P 500 Equal Weight Index Fund
Source: American Stock Exchange
Symbol
DGTDSGDSVELGELVONEQRSP
4339_PART2.qxd  11/17/04  1:02 PM  Page 51
Exchange Traded Funds
Nonequity ETFs
51
So far we have covered only these ETFs that invest in stocks. As mentionedearlier, this book is concerned only with the portion of your investments al-located to equities, but for the sake of completeness, let’s take a brief lookat other types of ETFs available to the investing public.
Closed-End ETFs
A closed-end ETF issues a fixed number of shares when it undergoes an ini-tial public offering (IPO). Investors who buy or sell the shares do so directlyon a stock exchange (just like stocks), not from the issuer of the fund. Themarket price of a closed-end ETF typically resembles the net asset value ofthe fund, but it also may trade at a premium or a discount to that value,based on supply and demand. No new shares are issued.
Closed-end ETFs differ from other ETFs because they can use leverageto enhance returns. They accomplish this by borrowing capital or by issu-ing preferred shares.
Currently  more  than  500  closed-end  ETFs  trade  on  the  stock  ex-changes. One good source of information about these funds is ETF Con-nect, run by Nuveen Investments (see www.etfconnect.com). These fundsare primarily fixed income ETFs and invest in debt instruments (bonds). Ahybrid ETF—the Nuveen Diversified Dividend and Income Fund (symbolJDD)—began trading in September 2003. It invests in shares of dividend-paying equities, real estate investment trusts (REITs), and two types of debtinstruments.
The  modern  mutual  fund,  or  ETF,  is  going  to  be  claiming  an  ever-increasing share of the investment assets of both public and institutional in-vestors. Originality and imagination are constantly in play, and investorsundoubtedly will be able to select from funds based on premises not yetimagined. One day there may even be an ETF that invests only in stocksthat have covered call options written on them.
SUMMARY
Historically, there have been two major advantages to owning traditionalmutual funds: (1) professional management; and (2) the ease of owning awell-diversified portfolio of stocks. By owning ETFs, investors gain the ad-vantages outlined in this chapter without the disadvantages of owning tra-ditional funds.
Traditional  mutual  funds  greatly  outnumber  ETFs,  and  spend  hugeamounts on advertising. Many salespeople push traditional funds. Still, the
4339_PART2.qxd  11/17/04  1:02 PM  Page 52
52
CREATE YOUR OWN HEDGE FUND
educated investor (you, the reader) can ignore all the sales pressure andmake the intelligent choice of investing in ETFs. There is a sufficient vari-ety of ETFs to meet the needs of almost any investor who wants to own adiversified portfolio of stocks.
Let’s take a break from ETFs and learn about stock options and how to usethem  to  achieve  enhanced  profit  potential  and  reduced  risk.  Then  we’llcombine our knowledge of ETFs and options to define a risk-reducing, in-come-enhancing strategy suitable for the vast majority of those who investin the stock market.
4339_PART3.qxd  11/17/04  1:16 PM  Page 53
PA R T   I I I
Options
4339_PART3.qxd  11/17/04  1:16 PM  Page 54
4339_PART3.qxd  11/17/04  1:16 PM  Page 55
C H A P T E R   7
What Is an Optionand How Does anOption Work?
If you are unfamiliar with options, you will not be left behind. We’ll begin
our discussion with the most basic concepts of options, including a dis-cussion of what an option is and how an option works. You’ll see thatyou are already familiar with the concept of options and use them in youreveryday lives—even if you are not currently aware that you are doing so.After the options tutorial, you will learn two practical option strategies youcan use to enhance profits and reduce risk.
To adopt the overall investment methodology emphasized in this book,it’s important to have a good understanding of how options work becausethis versatile investment tool plays a crucial role in the investment process.The  teachings  of  modern  portfolio  theory  are  compatible  with  using  op-tions in the prescribed manner, because options are an investment tool thatfurther increases anticipated returns while reducing both portfolio volatil-ity and risk. The story of options offered here is not meant to be complete.Instead  the  goal  is  to  provide  enough  information  for  you  to  understandhow options work and how you can use them intelligently to achieve yourinvestment goals. Many texts devoted to options are available for readerswho want a more complete options education.1
We’ll  begin  by  taking  a  brief  look  at  what  options  are  and  how  they
work.
Readers who are confident they understand how to use options may
prefer to skip ahead to Chapter 10.
55
4339_PART3.qxd  11/17/04  1:16 PM  Page 56
56
CREATE YOUR OWN HEDGE FUND
TERMINOLOGY
Participants in the options universe use a language of their own, and it’s im-portant to understand some of the lingo. As the most important terms areintroduced, each is italicized. These terms are also included in the glossary.
WHAT IS AN OPTION?
An option is a contract describing the terms of an agreement between twoparties: the buyer of the option: contract and the seller. The price paid bythe buyer to the seller is known as the premium.
There are two types of options: puts and calls. A call option gives its
owner the right to buy, and a put option gives its owner the right to sell
• a  specified  item,  called  the  underlying asset.  For  our  purposes,  the
asset is 100 shares of a specified stock (or ETF).
• at a specified price, called the strike price.• for a specified period of time. An option has an expiration date.
Thus:
• A call option gives its owner the right to buy 100 shares of the underly-
ing stock at the strike price any time before the option expires.
• A put option gives its owner the right to sell 100 shares of the underly-
ing stock at the strike price any time before the option expires.
That’s all there is to an option. Options may be used in either simple or
complex strategies, but the concept of an option is not complicated.
You  probably  have  heard  about  someone  taking  an  option  to  buy  apiece of property. All that means is that the option holder has paid somemoney and has the exclusive right, for a limited amount of time, to buy theproperty for an agreed-on price. The property owner cannot sell to anyoneelse, but must wait until the option holder makes the decision to buy or notto buy. Once the option expires, the property owner is free to sell to any-one. Despite stories to the contrary, options are easy to understand.
HOW DOES AN OPTION WORK?
In return for paying the premium, the option owner gains certain rights. Inreturn for receiving the premium, the seller accepts certain obligations.
4339_PART3.qxd  11/17/04  1:16 PM  Page 57
What Is an Option and How Does an Option Work?
57
Rights of an Option Owner
The buyer of the option has the right to exercise the option any time, as longas  it  is  before  the  option  expires.  When  exercising,  the  option  owner  isdoing what the contract allows. The call exerciser buys 100 shares of theunderlying stock at the strike price. The put exerciser sells 100 shares ofthe underlying stock at the strike price.
Obligations of an Option Writer
The seller (writer) of a call option accepts the obligation to sell the under-lying stock at the strike price—but only if the option owner chooses to ex-ercise before the option expires.
The seller of a put option accepts the obligation to buy the underlyingstock at the strike price—but only if the option owner elects to exercise be-fore the option expires.
How do you learn that the option owner has exercised the option if youare  the  option  writer?  Your  broker  informs  you.  For  details  of  how  thisworks, see the boxed text.
Exercise/Assignment Process
The Options Clearing Corporation (OCC) maintains a listing of every accountthat owns, or has sold, each option that trades on any of the (currently six)options exchanges in this country. When an investor exercises an option,the OCC first verifies that this person really owns the option and has theright to exercise it. Then it randomly selects one account (from among themany) that currently has a short position in that specific option and assignsthat account an exercise notice. That notice (called an assignment) informsthe account holder that the option owner has exercised the option and thatthe account holder is obligated to honor the conditions of the option con-tract.  No  action  is  required  on  the  part  of  the  person  who  has  been  as-signed an exercise notice, as the transaction is automatic. For example, thecall  writer’s  broker  credits  the  account  with  cash  (100  times  the  strikeprice) and 100 shares of stock are removed from the account, just as if theaccount holder sold the stock in the usual manner. If the account holderdoes not own the shares, then the stock is sold short.2
Similarly, when a put writer is assigned an exercise notice, 100 sharesof stock are deposited into the put writer’s account and the cash to pay forthose 100 shares of stock is removed.
4339_PART3.qxd  11/17/04  1:16 PM  Page 58
58
CREATE YOUR OWN HEDGE FUND
Note: Because the option owner has the right to exercise any time be-fore the option expires, the option writer never knows if, or when, the op-tion owner is going to exercise those rights. That choice remains at the solediscretion of the option owner. Thus, don’t be surprised if occasionally youare assigned an exercise notice before expiration. Most of the time, though,the  decision  to  exercise  is  made  at  the  last  possible  moment,  when  thestock market closes on expiration day (the third Friday of the expirationmonth3). When that happens, the person assigned an exercise notice learnsabout the assignment before the market opens for trading on the followingMonday morning. (If you have an online brokerage account, you probablycan learn about the assignment on Sunday.)
Technically,  options  expire  on  the  Saturday  morning  following  thethird Friday of the expiration month. But the deadline for deciding whetherto exercise an option is shortly after the market closes on the third Friday.It is customary to refer to the third Friday as expiration day for the options.Adopting that custom in this book, we’ll refer to expiration day as the thirdFriday of the month.
Again, that’s all there is to it. Options are neither complicated nor diffi-
cult to understand. In fact, you probably have used options many times.
OPTIONS ARE PART OF YOUR EVERYDAY ROUTINE
The rain check you receive from a grocery (or other retail) store is a call op-tion. The discount coupons you clip from the daily newspapers are call op-tions.  The  insurance  policy  you  own  on  your  home,  car,  or  life  are  putoptions. Let’s see why.
When you attempt to buy an advertised special at a retail store, some-times the store is sold out and you are unable to buy the item. When thathappens, it is customary for the store to issue a rain check to you. That raincheck gives you the right to return to the store to buy a specific item (theunderlying asset) at a special sale price (the strike price). The rain check isgood for a limited period of time—until the expiration date. Thus you havethe  right—but  not  the  obligation—to  return  to  the  store  to  buy  the  saleitem at the sale price for a limited amount of time. You don’t have to use therain check; it’s your choice. The rain check grants its owner the identicalrights as the owner of a call option, and, thus, your rain check is a call op-tion. You can simply throw the rain check in the trash. Alternatively, youcan exercise your rights to buy the sale item at the sale price. When you no-tify the sales clerk at the retail store that you want to buy the item, you aredoing two things: (1) you are exercising your rights as the option owner,
4339_PART3.qxd  11/17/04  1:16 PM  Page 59
What Is an Option and How Does an Option Work?
59
and (2) you are assigning the store owner an exercise notice. That’s exactlythe way a stock option works. When you own a stock option, you have theright to buy 100 shares at the strike price, but you are under no obligationto do so.
A discount coupon works in the same way. It allows you to buy (for ex-ample) a one-topping pizza for $3 off the regular price for a limited amountof time. Again, it’s your choice. You can exercise your option to buy thepizza at the discounted price, or you can discard it.
An insurance policy is similar to a put option because it gives you theright to sell (for example) your destroyed car or stolen necklace to the in-surance company at the strike price (the amount for which it is insured). Inreturn for accepting the premium you paid, the insurance company acceptsthe obligation to buy the specified item. Of course, there are conditions.You cannot simply force the insurance company to buy your car or neck-lace—the items must be either lost or damaged. Thus, these insurance poli-cies are not as flexible as stock options. When you own a stock option, youcan exercise your rights at any time for any reason.
Stock options can be your friends. They can be used as part of a con-servative investment plan that allows you to enhance the performance ofyour  stock  market  portfolio  and  reduce  risk  at  the  same  time.  Unfortu-nately, options also can be used for risky propositions. Far too many op-tions novices learn to use options only as tools for speculation. That’s whyso many people have negative feelings when they hear the word “options.”They hear about someone who lost a pile of money trading options and im-mediately  conclude  that  options  are  only  for  gamblers.  No  one  ever  ex-plains  that  the  poor  choice  of  an  options  strategy  caused  the  loss.  Theblame is always placed on options themselves. One purpose of this book isto dispel the notion that options are dangerous investment tools.
We’ll take a closer look at specific, conservative strategies that show
you how to use options in Chapters 10 and 11.
4339_PART3.qxd  11/17/04  1:16 PM  Page 60
C H A P T E R   8
More OptionsBasics
When the Chicago Board Options Exchange (CBOE) first listed call
options  on  individual  stocks  in  April  1973,  it  revolutionized  theway options were traded. Previously, trading in puts and calls washaphazard, with brokers and dealers advertising specific options for sale inthe Wall  Street  Journal.  These  options  had  random  exercise  dates  andstrike  prices.  Investors  who  bought  one  of  those  options  had  almost  nohope of finding a buyer, if they wanted to sell the option before expiration.The listing of options at the CBOE changed everything.
With the advent of trading on an exchange, options became standard-ized (see boxed text), and customers were able to buy and sell options aseasily as stock. Trading options on an exchange began with the listing ofcall options on 16 stocks at the Chicago Board Options Exchange. Todaythere are six options exchanges in the United States and others around theworld.1 Options are available on thousands of different stocks and a multi-tude of indexes.
60
4339_PART3.qxd  11/17/04  1:16 PM  Page 61
More Options Basics
61
Standardization of Options
When options began trading on an exchange in 1973, they were offeredwith specific and predictable strike prices and expiration dates. Expirationfor all listed equity options was established as the Saturday morning fol-lowing the third Friday of the month, and the last day of trading for eachoption is the third Friday.
Strike prices for each stock originally were offered at three-month in-tervals. For example, IBM’s options offered expirations in the nearest threeof the months of a quarterly cycle: January, April, July, or October. To offera variety of expiration dates to options traders, other stocks had optionsexpiring on the February cycle (February, May, August, November). Later,stocks  were  listed  with  options  expiring  in  the  last  remaining  quarterlycycle: March, June, September, and December.
Even later it was recognized that investors prefer to trade options withshorter lifetimes. Today each underlying stock offers options with at leastfour different  expirations:  the  nearest  two  months,  plus  two  additionalmonths from the stock’s original quarterly expiration cycle. (Some of themore actively traded stocks also list LEAPS, or long-term equity anticipationseries. These are longer-term options, expiring in January, up to three yearsin the future.)
Example: Assume it is early August 2005.
IBM options expire in