Here's a different perspective on how prices change throughout the month, but these views do not represent a calendar month. The views presented here show how prices change relative to each month's option expiration date. On the third Friday of each month Equity options expire. So these charts were created by starting with the fourth Monday of the preceding month and ending with the third Friday of the Current month. Basically, you are looking at a month's price history starting the day after option expiration until the next option expiration. In addtion, since the number of days in each month varies, some of the lines do not start at day one (x-axis, bottom of chart, marks number of days.), but all plots end on the same day - option expiration, which is the third Friday on the month.

The reason for creating these charts is simple. Equity options trade $2.5 Billion a week in premiums alone. This doesn't even reflect the fact that 1 single equity contract controls 100 shares of stock. So if you extrapolate this, the average 15.5 Million contracts traded each week control 1.5 Billion shares of stock which the equivalent of one trading day's volume on the NYSE. Plus if you use the NYSE's average share price of $25.50 that translates into $38 Billion worth of stock. Now add in the $1.9 Billion in premiums traded each week in index options. In this category, 1.2 Million contracts are traded each week and these contracts control $140 Billion worth of stock. So the option market now influences the value of nearly $200 Billion worth of stock each week or exerts its influence on 5.5 Billion shares. It exchanges nearly $4 Billion in option premiums each week and represents a significant share of total trading "pool". The influence of options has grown tremendously since 2000 and so has the significance of the contract expiration date. So to ignore the significance of this market's influence on the equity market would be to an investor's peril.

The prices used for these charts are the OEX index prices, which represent the Standard & Poors 100. This index was selected since it is synomous with option trading. However, despite the decline in trading volume in the OEX (since 2000), the OEX is still viewed as the "option index". Each price used below was created by using the trading day's mid-point. This was calculated by averaging the day's high with the day's low. The reason for using the mid-point rather than the close was based on statistics. Trends are smoothed using the mid-point and the mid-point is more representative of the entire day's price action than just one point - the closing price. Also, since comparisons will be made from day to day and month to month, daily fluctuations due to extreme closings are eliminated and the true trend emerges. Lastly, these charts are not meant to quantify nor display daily volatility, but rather these charts focus on displaying the monthly  fluctuations.

With regards to understanding these charts, the bottom of the chart shows the number of  days in the month so that you can count backwards from the highest numbered day to calculate the number of days to expiration. For example, the chart below shows 21 days and day 19 represents 2 days to expiration. In addition, notice that all lines end at the right with a value of 1. This is due to fact that all prices for the month were referenced to the OEX's expiring days midpoint. So as you look at the chart, each plot decays to the expiration price. Of course the decay can be both upward or downward depending upon the price movement. The scale on the left side of the chart shows you the ratio of the day's price to the expiration price. But another way to understand this is to convert the ratio into percent. A value of 1.1 means the the day's price is 10% greater than the expiration price while a value of 0.90 means that the day's price is 10% less than the expiring price. This allows you to see the range of prices in terms of percent change from the expiration price. And as you view these charts, you should notice that some months have larger changes in prices than others. This would imply that the premiums for options should vary based on the amount of price variation historically shown.

Below is a chart of the twelve most recent expiring months. The range of prices over the last year fell between +15% and -15%. This means that over the last year investors saw prices change a total of 30%; that's alot of volatility. Also note that prices drifted down in 5 of the last 12 months and 7 months drifted up in price. This isn't an obvious observation given the fact that the market has been trending lower until March 2003 and may surprise you. But again, please note that these monthly price trends are not based on calendar days but relative to the option expiration date.

Note that the thickest line on the chart is the most recent month and if you look at the light blue line it represents June 2003. Notice how the line is rising. Translating this line, it means that back in May prices were about 8% lower and prices rose slowly and steadily into June's expiration. This is drasticly different from what happened in July 2002 when prices dropped about 14% from the fourth Monday in June to July's expiration.

For another unusual perspective, below is a monthly chart of the SPX (SP500 cash index) on an option expiration basis. The information is still from the SPX prices and daily stock volume and not from SPX options. The difference between this chart and a normal monthly chart is that the high, low, and close are determined by the range of prices and daily volumes from the day after option expiration to the following option expiration. The first day of the option month is the fourth Monday of the previous month and the last day of trading for each of these months is the third Friday of the Month, or the previous business day if that Friday is a holiday. For more details click Monthly Charts and Long Term Perspective.

Below are the individual OEX monthly charts. Each chart uses the same scaling and each line represents the same year so comparing one chart to the other is easy. You can quickly find the plots for any given year by scanning for the same color in each of the monthly charts. Also, if you want to compare "bullish" years to "bearish" years, the data for 1996 to 1999 would be the "bullish" years and 2001 and 2002 would be the "bearish" years and 2000 is the transition year. 2003 is still a "toss-up".

Please note that some months do not have 2003 data yet and so the thickest line represents still represents the most recent data despite it being last year's data. In addition, take notice of the price ranges for each of the months and notice if any month has a trend. For example, January is typically viewed as an up month but as the chart shows from the fourth week in December to the third week in January, prices vary +/-5% but don't change dramatically from start to end. Prices start near the value of 1 and end at 1. So both selling both puts and calls seems to be the best statistical strategy since volatility remains constant up to the last 5 days. Also notice that May and November are the best trending months while the April, June, and July are unpredictable. August has a slight upward bias but notice how September and October differ from conventional wisdom. September and October are known to be the worse months for investors but yet there is no strong downward bias. Half of the plots rise in both months which shows us that at least in reference to options, prices can rise or fall equally.

Now if you concentrate on the range of prices you'll see the following ranges for the past 7 to 8 years:

It's interesting to see that the two months with the lowest price variations are December and January and the two months with the greatest amount of price variation are the Spring and Fall equinoxes -six months apart. What a coincidence? The two least volatile months are together and the two most volatile months are farthest apart. So the next time you trade options, if you ever do, watch the option premiums shrink and expand for these months.