Loading
Market Intelligence › News And Updates
Weekly vs monthly, cash vs physical settlement, the fate of ITM, and the psychology that pins price in one place on expiry day
Published by The Retail Trader · AUG 09, 2026 · Features
Once a week there comes a day when an option's premium starts melting without any big news, and by evening half the traders' accounts are red. That day is expiry. Most people treat expiry as just a 'volatile day' — in reality it is the day a contract dies, and the rules of that death are already written.
Every futures and options contract is an agreement with a last date. After that date the contract does not exist. Expiry does not mean you are forced to close your position — it means that if you do not, the exchange will settle it by itself according to its rules, and that settlement will not be on your terms.
This is the one thing new traders miss. In equity you can hold a stock for years. In F&O, time runs against you as a deadline.
There are two kinds of expiry cycles, and their character is completely different:
• Weekly — only on index options. A new contract expires every week. Short life span, so the premium is cheap, theta is fast, and a single move makes or breaks the whole contract.
• Monthly — in both index and stock. Expires at the end of the month. Futures rollover, institutional hedging and position build-up happen on this cycle, so this is where the real picture of open interest shows.
• The exact day of expiry is decided by the exchange and has been changed many times in the last few years — sometimes Thursday, sometimes Tuesday, and different for different exchanges. So never go by remembering the day; always check the exchange calendar.
The practical difference is this: in a weekly contract you have no time to correct a mistake. In a monthly you have a little. A new trader finds the cheap premium of a weekly attractive — it is cheap because it has little time left to live, not because of any discount.
This is the point where the costliest accidents happen.
There are two different settlement modes:
• Index F&O (like Nifty, Bank Nifty) — cash settled. On expiry the profit or loss money is credited/debited to the account. No shares come, no delivery happens.
• Stock F&O — physical settlement. If your position stays open until expiry and is eligible for settlement, you have to actually give or take shares. The full value of one lot gets blocked.
This directly means: a stock option that you bought for a premium of ₹3,000 can, if held to expiry, demand a delivery obligation of lakhs from you — because the obligation arises not on the premium but on the full value of the contract. Brokers often have a policy of squaring off such positions before expiry, but that is their policy, not your safety net. The responsibility lies with the person holding the position.
At expiry an option is in one of these three conditions:
• ITM (In The Money) — the difference between strike and spot is in your favour. It is exercised and settled according to intrinsic value.
• ATM (At The Money) — strike roughly equal to spot. This is the most uncertain; a small move in the last minute pushes it into ITM or OTM.
• OTM (Out of The Money) — the difference is against you. It expires at zero. The whole premium is gone. No partial refund.
For an option buyer the most real point is this: an OTM option is built to expire at zero, and most options end exactly this way. The buyer needs not just the right direction — the right direction, a big enough move, and within the time limit, all three together.
If an ITM option is held to expiry, securities transaction tax is charged on it at exercise, which is calculated differently from the charge on a normal intraday sell. At one time this applied to the full contract value, because of which people paid tax greater than their whole profit on a small ITM option. The base was changed later, but the calculation is still not the same as on your normal exit.
That is why experienced traders sell an ITM position in the market rather than carry it to expiry. What the rate and base are, check on your broker's charge sheet — these numbers keep changing, and it would be wrong to quote them here.
On expiry day it is often seen that the index keeps hovering around some round strike — going 100 points up and coming back, going 100 down and coming back. This is called pinning.
There is no magic behind it. The strikes with the highest open interest are where option sellers have the biggest exposure. As expiry nears, these sellers adjust their hedge positions — if price goes up they sell the hedge, if it comes down they buy. This adjustment itself keeps pulling the price back into that zone.
And it does not happen every time. A big piece of news, an RBI announcement, a global gap — and pinning breaks immediately. So treat it as an observation, not as a trade setup.
An option's premium is made of two things: intrinsic value (how much it is ITM) and time value (how much time is left). On expiry day time value is falling towards zero, and the speed of the fall increases through the day.
This is why the most common experience on expiry day is: the index went in your direction, and yet your option became cheaper. The direction was right, but time value went so fast that the move could not cover it. This is not a trap, it is the design of the contract.
In SEBI's own study — the regulator's data, not some influencer's — about 9 out of 10 individual F&O traders made a net loss. This is not the figure of one bad year; it has been repeated across consecutive years.
This does not mean quit F&O. It means that if you do not fully understand the expiry mechanism — how settlement will happen, how large the obligation can become, and how fast time value will die — then you are not trading, you are buying a lottery ticket. Mechanism first, position after.
This article is for educational purposes only — it is not a buy or sell recommendation, makes no claim of guaranteed returns, and is not advisory. Rules, rates and mechanics are changed by the exchange, SEBI and RBI from time to time, so verify every number yourself with your broker or an official source.