*Investments in securities market are subject to market risks. Read all the related documents carefully before investing.
Options are time-sensitive tools; knowing what occurs at expiration is essential for risk management and future trade planning. The result at expiration decides whether your option will be exercised, expire worthless, or need an exit strategy, whether you hold a call or a put.
This guide clarifies the main occurrences and decisions resulting from expiring options contracts.
Contents
- What Does Option Expiration Mean?
- In-the-Money vs. Out-of-the-Money
- Automatic Exercise and Assignment
- Impacts on Your Portfolio
- What Should You Do Before Expiry?
- Conclusion
- FAQs
What Does Option Expiration Mean?
Every option contract has a set expiration date, which is the last day it can be validly exercised. After this, the contract becomes void.
Depending on the contract type (weekly, monthly, or quarterly), expiry usually occurs on a Friday. Understanding the expiration mechanism is essential for both risk management and strategy planning.
Read Also: How To Trade In Options With Small Capital
In-the-Money vs. Out-of-the-Money
What happens upon expiration mainly relies on whether your option is:
In-the-Money (ITM)
- A call option is ITM when the underlying stock’s market price is above the strike price.
- A put option is ITM when the market price is below the strike price.
- These options have intrinsic value and may be exercised or closed before expiration.
Out-of-the-Money (OTM)
- A call is OTM if the stock price is below the strike price.
- A put is OTM if the price is above the strike price.
- These contracts expire worthless and result in a 100% loss of the premium paid.
Automatic Exercise and Assignment
Most brokers and clearing corporations automatically exercise ITM options, typically if they are at least ₹0.01 in the money, unless the holder opts out.
If you’re the buyer:
You may end up buying shares (for calls) or selling shares (for puts).
If you’re the seller (writer):
You may face assignment, requiring you to deliver or purchase the underlying asset at the strike price.
Impacts on Your Portfolio
Not addressing expiring options can lead to unintended consequences.
ITM options:
Could result in physical delivery or cash settlement, impacting your account balance or exposure.
OTM options:
These expire worthless; no further action is needed, but the premium is lost.
Near-expiry volatility:
Options close to expiration may become more sensitive to price movement, increasing potential gains and losses.
What Should You Do Before Expiry?
Pre-expiry checklist for option holders:
- Decide whether to let it expire, sell, or exercise.
- Review open interest and liquidity—sometimes selling yields more than exercising.
- Understand assignment risk if you’ve written an option.
- Some brokers require action hours before market close on expiry day.
Read Also: Option Selling Basics
Conclusion
Options expiration is where planning meets execution. Knowing if your option is ITM or OTM, along with your margin capacity and intentions, can help you manage outcomes.
Prepare ahead of time to avoid surprises—experience and preparation make expiry management easier.
Risk Disclaimer: This article is for informational purposes only and should not be construed as investment advice. Options trading carries significant risk and may not be suitable for all investors. Please consult a SEBI-registered investment advisor before making any investment decisions.
Investments in securities market are subject to market risks. Read all the related documents carefully before investing.
FAQs
Yes, but depending on whether it is ITM or OTM, it may be exercised or expire worthless. It’s often wise to close a position proactively.
Most brokers let you know by the following trading day. Set alerts to track this or check your account.
Yes. If exercised, you must either use margin or have available capital to buy the underlying stock. Otherwise, you may face a margin call.