The calendar
Index options in India currently expire weekly — one weekday per exchange (NSE's NIFTY contracts on Tuesdays, BSE's SENSEX on Thursdays at the time of writing; the rules have changed more than once, so trust the dates on the chain, not this sentence). Stock options expire monthly on the last Tuesday of the month. On expiry day trading stops at 15:30 IST and the contract settles against the underlying's closing value, computed from the last half hour's weighted average for index and stocks.
Cash settlement: index options
Hold an ITM index option through expiry and you receive its intrinsic value in cash: a 23,600 call with NIFTY settling at 23,700 pays ₹100 × 65 = ₹6,500 automatically. An OTM option simply expires worthless; nothing further happens. Simple — with one tax wrinkle below.
Physical settlement: stock options
Since October 2019 every stock derivative on NSE is physically settled. Hold an ITM stock option through expiry and it becomes a delivery: a long call means you buy the full lot of shares at the strike; a long put means you sell them (so you must own them, or be short-delivered with penalties); a short call means you must deliver the shares; a short put means you must buy them. A RELIANCE 1,300 call on a 500-share lot that finishes ITM is a ₹6.5 lakh purchase, and your broker will demand the money — typically by raising margin to the full value in the last few sessions before expiry.
The STT trap on exercised options
Securities Transaction Tax on options is charged on the premium when you sell. But when an ITM option is exercised at expiry — which is what happens if you just hold it — STT is charged on the option's full intrinsic value instead, at a much higher effective amount. A call that is ₹50 in the money on which you made a ₹5 profit can see that profit entirely consumed by STT on the ₹50 of intrinsic value. Rule: if an option is ITM near expiry, sell it in the market rather than letting it exercise. Also note that since October 2024 STT on option sales is 0.1% of premium, not the old 0.0625%: trading costs on frequent option selling are meaningfully higher than a few years ago.
How expiry day actually trades
- Time value goes to zero by 15:30. An ATM straddle that cost ₹120 at 9:15 might be ₹40 by noon with the index unchanged. Long-option buyers watching their premium melt by the minute are the theta that writers are collecting.
- Gamma is extreme. A 50-point move swings ATM deltas from 0.3 to 0.7. Writers hedging that gamma can create sharp, self-feeding moves in the last hour — the “expiry-day whipsaw”.
- Max pain gravity. Price often settles near the strike that leaves the most option value worthless. Not reliable enough to trade alone, common enough to respect.
- Liquidity drains at far strikes. Spreads widen; exiting a position at a fair price gets harder. Don't be forced to trade at 15:20.
Rollover
To keep a view alive past expiry you roll: close the expiring contract and open the next one. For futures this crystallises the basis (Chapter 3) — you pay the new month's carry. For options you re-pay time value. Rolling is a new trade, not a continuation; re-evaluate it as one.
Next: strategies — built and priced on the live chain — in Chapter 10.