17. What Happens If I Hold an Option Till Expiry?
If you hold an options contract until expiry, one of two things will happen based on the moneyness of the option at that time:
- If the option is in the money (ITM), it will be automatically exercised and settled — resulting in a profit for the option holder
- If the option is out of the money (OTM) or at the money (ATM), it will expire worthless, and the premium paid will be a total loss
This automatic process applies to most exchange-traded options in markets like India and the U.S.
Understanding Expiry in Options
Expiry is the final date on which an options contract remains valid. On this day:
- The contract ceases to exist at the end of market hours
- No trading in that contract is allowed after expiry
- Final settlement happens based on the closing price (settlement price) of the underlying asset
Outcome at Expiry Based on Option Type
| Option Type | Moneyness at Expiry | Result | What Happens |
|---|---|---|---|
| Call Option | In the Money (Spot > Strike) | Option has value | Auto-settled for profit |
| Call Option | Out of the Money (Spot < Strike) | Option has no value | Expires worthless |
| Put Option | In the Money (Spot < Strike) | Option has value | Auto-settled for profit |
| Put Option | Out of the Money (Spot > Strike) | Option has no value | Expires worthless |
| Any Option | At the Money (Spot ≈ Strike) | No value | Expires worthless |
What Does “Settled” Mean?
In India, most options are cash-settled, not physically delivered.
- Cash settlement means the profit is credited directly to your trading account
- There is no need to buy or sell the actual underlying asset
- For stock options, if held till expiry, physical delivery may occur — meaning you might need to deliver or take delivery of actual shares if it is not squared off before expiry
Example: Index Option
You hold 1 lot of a Nifty 50 Call Option with:
- Strike price = ₹22,000
- Lot size = 75
- Spot price at expiry = ₹22,200
Profit = (₹22,200 – ₹22,000) × 75 = ₹15,000 This option will be automatically settled in cash, and your profit will be credited by the clearing corporation.
If the spot price at expiry is below ₹22,000 (say ₹21,800), the call option would expire worthless, and you lose the premium paid.
For Stock Options (India)
Unlike index options, stock options are physically settled if held till expiry. This means:
- If you hold a call option, you must buy the actual shares if it’s in the money
- If you hold a put option, you may have to deliver the shares if it’s in the money
To avoid physical delivery, most traders square off their positions before expiry.
Do You Need to Take Action?
In most cases:
- If the option is in the money → It will be automatically exercised and settled
- If the option is out of the money → It will expire worthless, and no action is needed
However:
- For stock options, it's essential to check with your broker about delivery obligations or automatic closing before expiry
Key Takeaways
- If you hold an option till expiry, its final value is based on the spot price of the underlying asset
- If the option is profitable (in the money), it will be automatically settled, either in cash or via delivery
- If the option is not profitable (out of the money or at the money), it will expire worthless
- For index options, settlement is in cash, and for stock options, settlement is typically by physical delivery
- Traders should be cautious near expiry, especially in stock options, to avoid unintended delivery obligations