What Happens When Call Option Expires

The expiration time refers to the exact appointment and time at which a contract is considered to be zero and void. Derivative contracts are traded before their expiry by traders.

Expiry of Futures and Options

Indian stock market perspective: Options

  • Stock options

In the Indian stock markets, trading in stock options contracts is available for a 3-month flow as per the exchange regulations.

Like the series of future contracts, the stock option contracts also replicate the same series of three successive calendar months and are classified into three categories – near-month, next month and far-month.

Too, there are 2 types of options: call and put. Both these options have monthly expiry, which is scheduled on the final Thursday of every month.

  • Index options

In the Indian stock markets, trading in alphabetize pick contracts can be washed on a monthly likewise as weekly basis. For alphabetize, there are 2 types of options – phone call and put. This is similar to stock options.

Index options, which have a monthly expiry,expire on the final Thursday of every month. Like the series of future contracts, the alphabetize option contracts also replicate the same series of three successive calendar months and are classified into three categories – about-month, adjacent month and far-month.

Alphabetize options having weekly expiry are scheduled to expire every Th for Nifty and Banking concern Nifty contracts. FINNIFTY weekly contracts expire every Tuesday. These contracts are termed as near-week contracts, next week contracts and far-week contracts.

How to square off options before expiry?

Options can be squared off before expiry past taking an contrary position to your pre-existing or open position. Which means if a trader has a long position, it is squared off by taking a short position in the same contract and vice-versa. Post-obit that, a cash settlement will take place and your profit or loss volition exist calculated. And then either the money volition either be credited to your trading account or will exist debited from your trading account.

Options payoff at expiry

Options at expiry

Long call

Short call Long put

Curt put

In-the-Money Options Option value is the profit Will forfeit the premium received  and suffer a loss of the option value Choice value is profit. Will forfeit the premium received and endure a loss of the option value
At-the-Coin Options Pick value is zero so the premium paid is the loss incurred. Will receive the premium Option value is goose egg so the premium paid is the loss incurred. Will receive the premium
Out-of-the-Money Options Choice value is zilch so the premium paid is the loss incurred. Will receive the premium as turn a profit Selection value is zero so the premium paid is the loss incurred. Will receive the premium as turn a profit

What happens if you lot don’t sell options on expiry?

The system volition auto foursquare off your position on expiry unless you have opted for a physical settlement. The concrete settlement is only possible for stock options.

What happens to options on death?

The system will auto square off all positions on options expiration unless a trader has opted for physical settlement. In instance of physical settlement, the trader should either pay the full corporeality for the shares and receive commitment of the same, or deliver the shares depending on the position taken.

Contracts that are not squared by traders are greenbacks settled automatically on the day of expiry.

If a trader identifies an opportunity in a particular contract, and then he/she can take fresh positions in options or gyre over futures contracts in the next month.

What happens when a call selection expires In-the-Coin(ITM)?

A call option buyer has the correct to buy the underlying security but is not obligated to. When the call option expires ITM, it means that the spot price is trading higher than the strike price. So, the selection holder shall cull to exercise the telephone call choice and buy the underlying security at the strike toll which is lower than the market price. If the deviation between the spot price and the strike price is greater than the premium paid, but then volition it issue in a net credit.

What happens when a put selection expires In-the-Money?

A put option buyer has the right to sell the underlying but is not obligated to. When the put option expires ITM, it would hateful the spot cost is trading well below the strike toll.Hence, the option holder will choose to exercise the put choice and sell the underlying at the strike toll, which is higher than the market price. If the divergence between the spot cost and the strike toll is greater than the premium paid, simply then volition it outcome in a cyberspace credit.

Indian Stock Market Perspective: Futures

In the Indian stock markets, trading in futures contracts is available for iii months, every bit per the substitution’s regulation.

Contracts are distinguished on the basis of expiry, namely:

  • Near month: In the nigh or (current) month’due south contract, at that place are 30 days or less left for expiry.
  • Next month: In the next month’due south contract, in that location are 60 days or less left for expiry.
  • Far month: In the far month’south contract, there are xc days or less left for decease.

For case, allow’south assume that it is ii June 2022 today. So, an investor can trade Reliance Industries futures for the current month contract expiring on 30 June 2022; the next month contract expiring on 28 July 2022; the far month contract expiring on 25

August 2022

Expiry of Futures and Options

Future contracts have but monthly expiry. Futures contracts for indices and stock are settled on the last Thursday of every calendar month. If the death falls on a holiday, settlement is preponed to the previous twenty-four hours. All expiries are stipulated by exchanges.

How do yous square off a futures contract?

Squaring off your position refers to taking an opposite position to your pre-existing. For instance, if yous have bought, then y’all sell and if yous have sold, and then you buy. In this case, there will exist a greenbacks settlement, so your profit or loss will be calculated and appropriately money will be credited or debited.

What happens to futures on expiry?

At decease, the cost of a derivative contract converges with the spot price. Open positions are squared off and cash settlement takes place. This means if a trader makes a turn a profit, the amount gets credited to his or her trading business relationship. And if a trader incurs a loss, then the corporeality gets debited from his or her trading account the next day.

This is known as the ‘T plus 1’ settlement bike.

If these positions are not squared off at expiry, and a trader opts for physical settlement, there is an substitution of delivery of shares for the full price.

Notation:

a. Concrete settlement: The underlying security on which the contract is based will exist delivered by the seller of the contract and the heir-apparent has to pay full cost for it.

b. Cash settlement: The payoff is calculated and the profit or loss is credited or debited.

Source: https://upstox.com/learning-center/futures-and-options/what-is-expiration-time-in-options-trading/

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