The expiration date is the most vital factor to consider when trading Options. It is the date on which your contract will become null and void. On or before the contract’s expiration date, you may either square off your position, exercise your options, or let it lapse worthless. The expiry date in options trading is also a deciding factor in determining the premium. Let’s understand this term in the context of the NSE.
What is NSE?
The National Stock Exchange, or NSE, is one of the world’s leading exchanges that was established in 1992. It is also the first to offer a screen-based trading platform. The NSE’s flagship index is the S&P CNX Nifty, also known as the Nifty 50. It consists of 50 companies from 12 different industries.
What is the NSE option’s expiry time?
1. Stock Options
The NSE provides options derivatives for three months. Depending on the price movement of the underlying stocks, you may exercise your execution right or let the contract lapse on expiration. The NSE standa rdises option variables in terms of pricing and expiry.
NSE’s stock options contracts are further classified into- far-month, next-month, and near-month.
2. Index Options
They are available with monthly and weekly expirations. Options with monthly expirations typically expire on the last Thursday of each month. It also has contracts that are classified as far-month, next-month, and near-month, similar to stock options.
Index options’ weekly expiration varies with the indices.
|Nifty 50||Every Thursday|
|Bank Nifty||Every Thursday|
|Nifty Midcap 150||Every Tuesday|
What happens when Options expire?
There are only two outcomes on the expiry which decide the payoff. These are–
- The underlying asset price exceeds the strike price.
- The underlying asset’s price trades below the strike price.
To grasp the option expiry process, let’s delve into an example. Suppose a trader acquires a call option on ABC Ltd. with a strike price of ₹1,000. As the expiry day arrives, the closing price of ABC Ltd. stands at ₹1,050. This results in a positive final settlement value of ₹50 (₹1,050 – ₹1,000), which the option buyer gains from the option seller.
Other Key Considerations in Options Expiry
Limited Lifespan: Options contracts possess a finite lifespan and expire on a predetermined date and time.
Weekly and Monthly Expiry: While weekly options expire on the last Thursday of the week, monthly options expire on the last Thursday of each month, adjusted for trading holidays.
Settlement Price: The closing price of the underlying asset on the expiry day determines the settlement price, impacting the final settlement value.
Squaring Off Options: Traders can exit positions before expiry by taking opposing positions to their existing open positions.Risk Awareness: Fully understanding the intricacies and risks of options trading is crucial before venturing into this domain.
Can I buy/sell options in the pre-market trading session?
The NSE’s pre-market trading session lasts 15 minutes, from 9:00 am to 9:15 am, just before the stock market opens. However, only equity cash trading is permitted during this session. If you want to trade options at odd hours, you can use the After Market Order (AMO) facility, which allows you to purchase options contracts after the market closure, that is, 3:45 pm to 8:57 am.
Understanding the concept of contract expiry is critical because it tells you how much money you can make when the contract expires. The expiry date is also crucial in determining the time value of the contract. As this date nears, the likelihood of the security’s trading price intersecting the strike price rises.
FAQs| Options Expiry
Both terms are synonymous, referring to the date when an options contract terminates.
The Greeks are mathematical metrics like Delta, Gamma, Theta, Vega, and Rho used to analyse options pricing.
Yes, options can be squared off before expiry by establishing a contrary position to your existing one.
Yes, you can hold options till expiry to exercise them or let them expire. However, it involves risks like time decay. Alternatively, you can square off your options before expiry by taking an opposite position.
Disclaimer: Investments in the securities market are subject to market risks; read all the related documents carefully before investing.