Expiry (F&O)

Expiry is the deadline built into every derivative. Unlike a share you can hold forever, an F&O contract has a fixed lifespan and dies on its expiry date, after which it is squared off or settled.

How it works

On expiry, contracts are settled. Indian index and stock derivatives are cash-settled: no shares change hands, only the profit or loss is exchanged based on the final settlement price. For options, that price determines intrinsic value, in-the-money options are settled at their intrinsic value, while out-of-the-money options expire worthless, and the seller keeps the entire premium.

The settlement price is not the last traded price; for index contracts it is typically the average of the underlying over the last half hour of the session, which limits last-minute manipulation.

In India

From September 2025, SEBI standardised expiry days to curb the chaos of every index expiring on different days. Now NSE Nifty contracts expire on Tuesdays and BSE Sensex contracts expire on Thursdays, with weekly options expiring on those days and monthly contracts on the last such day of the month. Each exchange is restricted to one weekly index-options expiry, a deliberate move to cool the explosion of expiry-day speculation.

Why it matters

Expiry days are the most volatile and emotionally charged sessions of the week. As an option nears expiry, its time value decays rapidly, an effect called theta. On expiry day itself, premiums can swing wildly and out-of-the-money options collapse to zero, which is why short-dated options buying so often ends in total loss.

Common mistakes

The biggest error is holding in-the-money options to expiry by accident and facing settlement obligations, or letting positions auto-square at unfavourable prices. Buyers also misjudge how brutally theta erodes value in the final days, betting on a big move that, even when it comes, may not outrun the time decay. Treat expiry as a hard deadline: plan your exit, roll over to the next series in advance if you want to stay in the trade, and never assume an expiring contract behaves like a normal one.