Advanced · 7 min read

Expiry day and settlement

How index and stock options settle, and why expiry day behaves differently.

How options settle in India

• Index options (such as NIFTY or BANKNIFTY) are European style and cash-settled: they can be exercised only at expiry, and the difference between the settlement price and the strike is paid in cash. No shares change hands.
• Stock options are physically settled: an in-the-money option held to expiry results in delivery of shares (for sellers, an obligation to buy or deliver, requiring the full value or the shares in your account). Check your broker's rules on this before holding stock options near expiry.

Why expiry day is different

• Gamma is at its peak for ATM options, so small index moves cause big changes in option prices.
• Time value disappears quickly, so premiums of OTM options can collapse to near zero within hours.
• Spreads widen and liquidity can thin out for far strikes; your exit price can be worse than the screen price.
• An option that is just OTM can become ITM in minutes, and the reverse.

Expiry weekdays and contract specifications are set by the exchanges and have been changed over time. Check the current NSE and BSE circulars rather than relying on memory. The Calendar tab lists expiry dates from your data feed.

Caution. Holding short options through expiry exposes you to the fastest price swings of the whole contract's life. Many traders avoid it; if you do hold, size accordingly.