uTrade AlgosThe expiry date of futures and options contracts is the last day on which the contract is valid, after which it ceases to exist. Generally, the last Thursday of every month is considered a fixed expiry date for F&O unless it is a public holiday, in which case the expiry is adjusted to the previous trading day.
The expiry date holds significant importance in F&O trading, as it holds various repercussions for F&O trades. Here is what happens on the expiry date:
Futures: On the expiry date, futures are settled in cash or through the delivery of the underlying asset, depending on the contract specifications.
Options: In the case of options contracts, they are either exercised (if they are in the money) or expire worthless (if they are out of the money) because there is no obligation to fulfil the contract.
Increased Volatility:
- Expiry often brings increased market volatility due to traders unwinding or rolling over positions to the next month’s contract.
- ‘Expiry week’ or ‘expiry day’ trading can show sharp price movements as positions are squared off.
Rollover of Positions: Traders who wish to maintain their positions often ‘rollover’ contracts to the next month’s expiry by closing the current contract and simultaneously opening a position in the next month’s contract.
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