Who is responsible for choosing maturities and strike prices in the listed options market? For instance, some

Question

For instance, some underlying stocks have different maturity schedules than others, some have LEAPs and some do not, etc.

And what is the criteria for choosing maturities and strikes?

Answer 1

The expiration dates (the maturities): all stocks with options belong to one of several regular cycles, for example a stock with LEAPS might have jan 07, feb 07, may 07 and aug 07 expiration dates, plus 08 and 09 LEAPS. Everyone knows that when the feb 07s expire on 3rd friday of feb, the nov 07s will open the following monday. This pattern is a cycle 2.

Cycle 1s expire in jan, apr, jul & oct.
Cycle 3s expire in mar, jun, sep & dec.

Options with LEAPS always include jan no matter what cycle they belong to.

There are also short cycles with options in 3 consecutive months plus 2 from the longer cycle.

Cycles were set up by the clearing corporation and new options are assigned to a particular cycle by clearing corporation.

Strike prices: these are determined by the market makers since they are responsible for maintaining a market for each series and class they open. As stock prices rise, there are rules requiring the MMs to open new series/classes at the appropriately higher strike levels.

And how do new options get listed? By demand from the market makers who indicate to their exchange that they are willing to maintain a market in a stock that does not yet have any options. The exchange then files with the clearing corporation. I believe that financial bonds must be posted.

Lastly, options can also be delisted upon application by the market makers, through their exchanges, to the clearing corporation. This happens when an option falls out of favor and seldom trades.

Delisting is a gradual process in that all open series and classes continue to trade. However, the market maker is no longer obliged to open additional series/classes in the cycle, as time passes. Eventually all the listed options expire.

The role of the clearing corporation as the ultimate authority or counterparty of last resort is essential.

Answer 2

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Answer 3

The exchange on which the options are traded.