All about options expiry in India
Are you thinking of trading in options contracts? If yes, there are a number of important terms and facts you need to actively consider while trading in this derivative. These include options' expiration date or expiration date, strike price, premium amount, and market trend. However, the options expiration decides the special price and the premium amount.
As you probably know, all derivative contracts must end on or before the specified date.
The expiration date is set for any derivatives contract based on a particular underlying security. It is important to remember that the options expiry date in India refers only to the contract (in this case, options expiry) and not to the underlying securities.
Generally, two terms are used: one is 'expiry, and the other is 'Expiration. However, these phrases are similar. Both imply the date on which a contract terminates.
The Expiration Date of an Option is the last day on which the Optionee may exercise the Option by the provisions of the Options Contract, or the previous day until the Option is valid.
Options contracts on Indian stock exchanges typically expire at the end of business hours on the last Thursday of the month. In the case of weekly options, the contracts expire at the end of business hours every Thursday. If the expiry date falls on a day when the exchanges are closed for trading, the options expire on the day before the original expiry date. In the United States, usually options expire on the third Friday of the month.
Picking the right option expiration days
The appropriate strategy for option expiration date can make or break your investment. The following can assist you in making that decision:
When choosing an options strategy and a stock expiration date, your judgment of volatility is a crucial consideration. Many options traders use implied volatility (IV) and historic volatility (HV) data to help them pick an expiration date. IV refers to the future expectations related to the volatility. Higher IV leads to higher option premiums. HV refers to the past trading ranges and prices.
Mathematical computations known as "Greeks" are used to assess the influence of variables like volatility and Time Till Expiration on the movement of option prices.
When do options expire in India?
Monthly options contracts expire on the last Thursday of the month after the market closes. Weekly options expire every Thursday. However, derivatives of the Fin Nifty index expire on Tuesdays.
As mentioned before, if the expiry date coincides with a bank holiday or if the markets are closed for trading, the contracts expire a day prior to the original expiry day.
All about weekly and monthly expiration
There is a finite duration to any option contract between a buyer and a seller. The parties to the sale transaction will establish an expiry day in the stock market by which the buyer of the Option must determine whether to exercise their right to purchase (or dispose of) shares of the underlying stock.
Weekly options are functionally similar to monthly ones, but allow investors many more alternatives for the stock expiration of their contracts. Some stocks may not have weekly options available. Derivative contracts are usually available only on the most liquid stocks. A trader or investor can check the list of stocks in which F&O instruments are available on the NSE website.
When trading in options listed on an exchange, the most frequent time frames for option expiration are one month and one week. However, there are other time frames too. In India, long-dated options are available which have a minimum maturity of 9 months.
Q. On options expiry day, is it possible to purchase it?
If you buy or sell an option in time before it expires, you gain the right to purchase or dispose of the underlying securities. There would be a sharp decline in the value of an option as the time nears its expiration date. Options with a weekly expiration period end on Thursdays, whereas monthly options expire on the last Thursday of the month.
Q. Do stock options have a midnight deadline?
Although the Securities and Exchange Board of India (SEBI) has permitted the trading of options contracts till 11:55 PM, the options are traded till 3:30 PM. On expiry days, options contracts expire after the trading hours are over.
Q. What about selling options beyond business hours?
Options can only be purchased or sold within a market's regular trading hours. Trade volume for stock options is highest between 9:30 AM and 3:30 PM. However, trading in most equities is possible outside of these times.
The last day of the futures and options (F&O) contract is known as the “expiry day". To know how to trade on this day, read this blog.
The expiration date is the single most critical consideration when trading options. Let's see what happens if you don’t square off your option contract position.