What Is Expiry Day in F&O and What Happens

Short answer: Expiry day is the last day a futures or options contract is valid, after which it is settled; index options are typically cash-settled while in-the-money stock options can lead to physical delivery.

What Expiry Means

Every derivative contract has a fixed expiry date. On that day the contract ceases to exist and must be settled. Until then you can hold, add to, or close your position; after it, settlement is automatic based on the final settlement price.

How Options Settle

At expiry, an option that is in the money (a call below the underlying price, or a put above it) has intrinsic value and is settled accordingly, while one that is out of the money expires worthless, and the buyer simply loses the premium. Index options are cash-settled, with profit or loss exchanged in cash.

Physical Delivery for Stock Options

For stock derivatives, in-the-money options at expiry can result in physical delivery, meaning the buyer or seller must give or take delivery of the actual shares. This requires having the shares or the full purchase value, so traders who do not want delivery must close positions before expiry.

How Futures Settle

Index futures are cash-settled at the final settlement price, while stock futures held to expiry can also involve physical delivery of shares. The daily mark-to-market continues right up to expiry.

Expiry Day Volatility

Expiry days, especially weekly index expiries, can be highly volatile as traders adjust and close positions and as time decay accelerates. Premiums of near-expiry options can swing sharply, creating both opportunity and danger.

Practical Cautions

Know your contract's expiry and settlement type in advance. If you do not want delivery obligations or large margin demands, close stock-option positions before expiry. Be especially careful trading deep out-of-the-money options near expiry, where rapid decay can wipe out value quickly.

This explainer was written by The Dispatch desk to answer a question readers commonly ask. It is general information, not personalised financial advice.