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What is Expiry in Share Market? [2022]

Today we will discuss what is expiry in Share Market? Monthly and Weekly expiry in Indian Stock Market, we will also understand what happens to stock on expiry. 

A trader or an investor would have heard of expiry in share market. However, many are not aware of what is meant by the word 'expiry'.

This blog post will explain to you all about expiry and how it can be beneficial for your trading career.

What is Expiry in Share Market?

Expiry is the date on which an option (or other derivative) expires. The expiry of an option or other derivative is the last day it can be exercised, and its importance cannot be understated.

For instance, if you are long call options with a strike price of Rs. 1000 on company ABC's shares that expire in one month, then you would need to buy (or exercise) your options by their expiry date in order to realize any profits from them.

A derivative contract, which is based on an underlying asset such as a stock, commodity, or currency, has an expiration date, but the underlying asset does not.

A derivative contract based on an underlying security exists for a limited time, which ends with the expiration date of that underlying security.

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What is Expiry date in Indian Stock Market?

On the expiry date in Indian stock market derivative contract, the buyer and seller exchange their obligations. The settlement is done as follows:

1. Physical delivery: If the underlying security is physically delivered under a specific contract (usually the case with commodities), the seller of the contract sends the quantity to the buyer and the buyer pays the full price of the contract.

2. Cash settlement: In Cash settlement, the difference between the spot price and the derivative price takes place through the exchange of money, rather than by transferring ownership of the underlying security. In India, equity derivatives are settled using cash.

The expiration date for Indian stock exchanges is the last working Thursday of the month when the contract expires. Here's an example that should make everything clearer.

Consider the case of three future contracts on the Nifty50 index, as follows:

  • A near one-month contract expiring on Jan 27, 2022 (The last Thursday of the month)
  • A next month contract that is expiring on Feb 24, 2022 (The last Thursday of the month)
  • A far month contract that is expiring on March 31, 2022 (The last Thursday of the month)

A buyer can purchase any of these contracts up to and including Jan. 27, 2022, which is a Thursday, at any time during the working day on that date. On January 27, 2022, the first contract, that is, the near-term contract will be settled in cash.

Monthly expiry in Share Market

During Monthly expiry a derivative contract expires at the last Thursday of the month. If the last Thursday is a holiday, then it will expire on the previous trading day.

All equity derivatives contracts are subject to expire on the monthly expiry date. If there is no trade of that contract on the last Thursday, then it expires worthless and any open positions of an expiring derivative must be liquidated by its holder.

If you hold one month contract with a strike price of Rs.1000 and the market rate of the underlying security is Rs.1100, then on the monthly expiry day you will get Rs.100 per share as profit (Rs.1000 - Rs.100 = Rs.900).

Every expiry cycle, NSE conducts a separate auction after trading hours on the last settlement day (both buying and selling). The opening price in this process is termed as 're-opening price'.

The re-opening price is determined by computing the arithmetic average of prices traded for all transactions executed during the last 10 minutes of the trading session. This price is then rounded off to two decimal places in case of an odd number.

What happens on Weekly expiry in Share Market?

During weekly expiry, a derivative contract expires on the last Thursday of the week.

For instance, if you hold a weekly Nifty50 Call options contract with a strike price of Rs. 18000 and Nifty50 at the end of the week close at Rs. 18200 then you will gain Rs. 200 per options contract at the end of the week.

In case, if the last Thursday is a holiday, then the derivative contract expires on the previous trading day same as Monthly contracts.

At the expiry date buyers and sellers of the contract come together and settle the difference between the market price of the underlying security and the strike price.

What happens to Stock on Expiry day?

During the expiry day, all OTM contracts that is Out of The Money contracts become zero.

For example, you own a Call option with a strike price of Rs.18000 and Nifty closes at 17950, then you will be having a loss equal to the money spent while buying the Call options.

Please note that OTM contracts are always settled in cash, meaning that if you have any OTM contracts they will expire worthless. Hence, you will not have any problem in selling them.

In the expiry process, long positions of all expiring derivatives contracts are immediately converted into delivery or physical settlement from cash settlement.

In the case of stock options, you will receive the underlying security delivered to your Demat account by 5 PM on the last working day of the month.

Similarly, in the case of a futures contract, you have to deliver the underlying security or pay margin money to your broker.

Hence, you will have all the securities delivered to your Demat account on the last settlement day after the completion of the expiry process.

Conclusion

The expiry day or last trading day of a derivative contract (futures and options) is the date on which these derivative contracts expire.

OTM position becomes zero and only the holder of ITM contracts will gain benefit during expiry day.

OTM position will expire in cash settlement and ITM positions are settled through physical delivery of stocks/futures or payment in cash depending upon the type of derivative contract.

On the last trading day, all open positions in equity derivatives must be liquidated by their respective holders.

If you have any questions about this please comment below.

FAQs

Options expiry time India?

All weekly options contract expires on the last Thursday of the week and all monthly contracts expire on the last Thursday of the month. In case the last Thursday is a holiday the contracts will expire on the previous trading day.

Why does the Option expiry time is different every month?

Because the Options contracts expire only on the last Thursday of the month, so every month the date may vary.

What is expiry in Share Market in Hindi?

Expiry वह तिथि है जिस पर एक Option (या अन्य Derivative) समाप्त होता है। एक Option या अन्य Derivative की समाप्ति अंतिम दिन है जिसका प्रयोग किया जा सकता है, और इसके महत्व को कम नहीं किया जा सकता है।

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