Understanding Option Expiry

Every option contract has a finite lifespan. Expiry is the date the contract ceases to exist. In India, equity index options (like Nifty and Bank Nifty) have weekly and monthly expiry cycles, while stock options typically follow a monthly expiry.

• Cash Settlement: Most index options are cash-settled. If your option is "In-The-Money" at expiry, the difference between the strike price and the final settlement price is credited/debited to your trading account.
• Physical Settlement: Stock options in India are physically settled. If you hold an ITM option until expiry, you are legally required to buy or sell the actual underlying shares. This is why retail traders must exit ITM positions before expiry.

Expiry day is often the most volatile day of the cycle. "Gamma scalping" and institutional hedging lead to erratic price swings as traders fight to push the market to a specific strike price where they hold the most open interest.