Expiry day is the last day an F&O contract exists. Any position still open at the end of that session stops being a trade you control and becomes a settlement the exchange carries out, in cash for index contracts, and potentially through actual share delivery for stock contracts.
Why do contracts expire at all?
Every futures and options contract is an agreement with a deadline. A Nifty 50 futures contract isn't a permanent instrument like a share. It's a contract about the Nifty 50 up to a specific date. On that date, the agreement must be honoured and closed out, so the exchange settles all open positions and the contract ceases to exist.
Exchanges list contracts in a calendar: index options typically have weekly and monthly expiries, while stock contracts follow a monthly cycle. The exact days of the week and the list of contracts change from time to time under exchange and regulator decisions, so always check the expiry date shown on the contract itself rather than relying on a remembered weekday.
What happens if Arjun does nothing on expiry day?
Arjun holds two positions into expiry. Let's trace each.
Position 1. A Nifty 50 call option. Index derivatives are cash-settled: no shares change hands, because you cannot take delivery of an index. If Arjun's call is in-the-money at the final settlement price, the difference is credited to him in cash (less applicable charges). If it's out-of-the-money, it expires worthless and his premium is gone. Nothing else happens.
Position 2. One lot of Sundar Textiles futures. Stock derivatives are different: an open stock F&O position at expiry can be physically settled, meaning Arjun may have to take delivery of the full lot of shares and pay their entire value, not just the margin he had put up. How that works, and why margins climb during expiry week, is covered in What is physical settlement in stock F&O?
The lesson: if you don't want the exchange deciding your exit, square off before expiry.
What decides the final settlement price?
Contracts are settled against a final settlement price derived from the underlying's closing price on expiry day, computed as per exchange rules rather than simply the last traded tick. That closing price for the underlying market has its own mechanics. The equity market's close involves a dedicated closing session, explained in What is the Closing Auction Session (CAS)?
This is why an option that looked marginally in-the-money at 3:20 pm can settle differently a few minutes later: the settlement price is a computed close, not the number that happened to flash last on your screen.
Why is expiry day so volatile?
Expiry days concentrate activity. Traders squaring off, rolling positions to the next month, and settling in-the-money contracts all trade within the same session, so prices (especially option premiums) can whip around sharply. Premiums of expiring options also collapse towards their intrinsic value as the final hours drain away, which can be brutal for buyers of out-of-the-money options hoping for a last-minute move.
Things to keep in mind
- Know your expiry date the moment you open a position, and decide in advance whether you'll square off, roll over, or let it settle.
- Holding in-the-money stock F&O into expiry can create a delivery obligation far bigger than your margin. This is one of the costlier beginner surprises; see What are the risks of trading Futures and Options (F&O)?
- Expiry-day price swings are normal; thin, expiring strikes can have wide spreads and poor fills.
- Expiry schedules are set by exchanges and do change. Verify the contract's own expiry date, not a rule of thumb.
Read next
What is physical settlement in stock F&O? — For stock derivatives, expiry can mean actually delivering shares.