6. What is the Expiry Date in an Options Contract?
The expiry date is the last date on which an option contract is valid. After this date, the contract becomes null and void.
- For a Call Option: The holder can buy the underlying asset at the strike price.
- For a Put Option: The holder can sell the underlying asset at the strike price.
Once the expiry date passes, no rights or obligations exist between the buyer and the seller.
1. Key Terminologies
| Term | Meaning |
|---|---|
| Strike Price | The fixed price at which the option can be exercised |
| Expiry Date | The last day to exercise the option |
| Premium | The cost paid by the buyer to the seller for holding the option |
| Time Value | Portion of the premium attributed to time remaining until expiry |
| Intrinsic Value | Value if exercised immediately (difference between strike and market price) |
2. Expiry Cycles in India (NSE)
| Option Type | Expiry Type | Expiry Day |
|---|---|---|
| NIFTY Options | Weekly & Monthly | Tuesday; monthly contracts expire on the last Tuesday |
| Stock Options | Monthly | Last Tuesday of every month on NSE |
| Long-term Index Options | Quarterly or Half-yearly | Last Tuesday of the expiry month on NSE |
Note: If the expiry day is a trading holiday, the expiry shifts to the previous trading day.
3. Option Life Cycle
Option Premium = Intrinsic Value + Time Value
As the expiry date nears, the time value decreases, leading to a drop in premium. This phenomenon is called Time Decay (Theta Decay).
Graph: Time Decay of an Option
- Options lose value faster as they approach expiry, especially in the last week.
- Out-of-the-money options tend to lose all their time value by expiry.
4. Example Table: Option Performance Near Expiry
| Contract | Strike Price | Spot Price | Premium | Expiry Date | ITM/OTM | Exercise? |
|---|---|---|---|---|---|---|
| NIFTY 22500 CE | ₹22,500 | ₹22,700 | ₹200 | 25-Apr-25 | ITM | Yes |
| NIFTY 22000 PE | ₹22,000 | ₹22,700 | ₹50 | 25-Apr-25 | OTM | No |
- ITM (In-the-Money): Profitable to exercise.
- OTM (Out-of-the-Money): Not profitable, will expire worthless.
5. Practical Use of Expiry in Trading
- Traders often sell options near expiry to capitalize on time decay.
- Strategies like Iron Condor, Straddle, or Covered Calls are based on expiry behaviour.
- Expiry days are highly volatile, as both institutions and retail traders unwind positions.
6. Types of Expiry Dates Globally
| Market | Expiry Day |
|---|---|
| US (Equity Options) | 3rd Friday of every month |
| NSE NIFTY Options | Tuesday (weekly; last Tuesday for monthly contracts) |
| NSE Stock Options | Last Tuesday of every month |
Always check the exchange calendar to confirm the exact expiry date.
Key Takeaways
- The expiry date is the last day an option is valid.
- After expiry, options become worthless if not exercised.
- Time decay accelerates as expiry approaches.
- Weekly and monthly expiries support short-term trading strategies.
- Always monitor expiry to avoid unintentional losses or missed profits.