What happens on F&O expiry day?

The Securities and Exchange Board (SEBI) of India regulates every Futures and Options (F&O) contract in India. SEBI has set a day when F&O contracts must be settled or closed. This is one of the most important days in the derivatives market in India and is called F&O expiry day.

What is F&O expiry day?

F&O expiry day is the final trading day on which a futures or options contract remains valid on the exchange. After the market closes on this day, the contract ceases to exist and is settled according to predefined exchange rules. In India, expiry schedules are standardised and overseen by the Securities and Exchange Board of India (SEBI) to ensure uniformity and transparency across markets.

Current expiry structure

As of January 2026, the derivatives expiry framework reflects regulatory changes introduced in September, 2025. Under the revised structure, weekly and monthly expiries are distributed between the two major exchanges. On the National Stock Exchange (NSE), Nifty 50 and Bank Nifty contracts expire weekly on Tuesdays, with monthly contracts expiring on the last Tuesday of each month. On the Bombay Stock Exchange (BSE), Sensex derivatives expire weekly on Thursdays, with monthly expiries of Sensex and Bankex on the last Thursday of every month. If an expiry day coincides with a market holiday, the contract expires on the preceding trading day.

Expiry day is a focal point for market activity because it compels traders to act. Open derivative positions must either be closed, rolled over to the next contract, or settled. 

What happens to Options on expiry day?

Option settlement depends on whether the contract expires in-the-money (ITM), at-the-money (ATM), or out-of-the-money (OTM). Index options in India are cash settled. In-the-money index options are automatically exercised, and profits or losses are settled in cash based on the closing value of the underlying index. Out-of-the-money and at-the-money index options expire worthless.

Stock options, by contrast, are physically settled. In-the-money stock options result in an obligation to take or deliver shares at the strike price. This has direct implications for margin requirements and capital availability. Traders who do not wish to participate in physical settlement typically square-off their positions before expiry.

Futures settlement on expiry

Index futures are cash settled. If a position remains open at expiry, it is automatically closed at the official closing price, and the resulting profit or loss is credited or debited to the trader’s account. Stock futures involve physical settlement, requiring delivery or receipt of shares if positions are not closed in time. Due to the logistical and financial implications, most traders avoid allowing stock futures to reach physical settlement.

Common mistakes on expiry day

Insufficient understanding of settlement mechanics: Many traders enter expiry day without clarity on cash versus physical settlement, margin obligations, and contract specifications, leading to avoidable losses.

Excessive leverage and weak risk management: Overreliance on leverage, coupled with the absence of predefined stop-losses and position sizing discipline, often magnifies losses during heightened expiry-day volatility.

Emotional trading and passive position handling: Decisions driven by fear or overconfidence, along with failure to actively monitor margins or square off positions before expiry, frequently result in unintended settlements and additional costs.

Key considerations for traders

Maintain clarity on expiries and settlement types: Track expiry dates diligently and understand whether your positions are subject to cash settlement or physical delivery to avoid unintended obligations.

Plan exits with disciplined risk controls: Define exit strategies in advance, supported by stop-loss orders, prudent position sizing, and close monitoring of Option Greeks such as theta and gamma.

Manage capital and costs holistically: Diversify exposure across assets and expiry cycles, ensure adequate margins, and account for transaction charges and tax implications when evaluating overall returns.

Conclusion

F&O expiry day is a defining event in the derivatives market, marked by increased volatility and mandatory settlement activity. While it presents opportunities, it also amplifies risk for those who approach it without preparation. Expiry day itself is not inherently hazardous; rather, risk arises from inadequate knowledge, poor discipline, and emotional trading.

Traders who invest time in understanding expiry mechanics, maintain structured risk management practices, and stay informed about regulatory changes are better positioned to manage this session effectively. Over time, disciplined preparation and continuous learning transform expiry day from a source of uncertainty into a manageable and predictable component of the trading calendar.