Zero liquidity in f&o. Stock till expiry (2024)

FAQs

What happens if option price goes to zero before expiry? ›

Contracts expiring OTM - OTM option contracts expire worthlessly. The entire amount paid as a premium will be lost. Brokerage will only be charged on one side, which is when the options are purchased, and not when they expire worthless on the expiry day. To learn more, see What is the brokerage for Futures and Options?

In the case of options contracts, you are not bound to fulfil the contract. As such, if the contract is not acted upon within the expiry date, it simply expires. The premium that you paid to buy the option is forfeited by the seller. You don't have to pay anything else.

Futures contracts need to be settled before the expiration date to avoid penalties. However, there is no penalty on not settling an options contract before the expiration. You can simply let the contract expire if you wish not to buy or sell the asset.

This is because time value gradually decreases with time and becomes zero at the time of expiry of options. So this is a definite loss for the option by since even if he pays Re. 1 as the time value, he is certain that it will become zero on expiry.

If the stock price goes below the strike price, you can exercise the contract and sell the shares for a price above the market price. If the stock price expires at or above the strike price(s), the option expires worthless, and you can lose the money you paid for the options contract.

Q. What will happen if an option holder does not exercise their right to sell before its expiration? If the option's strike price has not been reached by its expiration date, your brokerage will automatically close the deal and remove the option from your list of open positions.

If your Option expires OTM, it expires worthless. ITM Options are settled at their Intrinsic Value.

Effect of the Expiry Date in Stock Market

The Futures and Options (F&O) expiry date typically triggers significant volatility across the stock market. This volatility hinges on the settlement of derivative contracts, which can sway market sentiment toward bullish or bearish directions.

Fresh buy positions or long positions in the OTM stock options in the last two days of expiry (i.e. Wednesday and Thursday) are not allowed since the contracts can become due for physical settlement. However, clients are allowed to exit the open short positions for the quantity they hold.

That apart, Sebi's proposed F&O measures will remove 12 (of 18) weekly option contracts & impact approximately 35 per cent of industry premiums, analysts said. Spillover of trading activity from these contracts into remaining products, analysts believe, can limit the impact to 20-25 per cent.

How long can we hold F&O stocks? ›

Depending on what the date is when you presently enter into an F and O contract, the Far Month Contract will have an expiry date that corresponds to the last Thursday in the third month after the date of your entry in the contract.

For delivery sell transactions, a payout request can be placed on the T+1 day (next working day). For F&O transactions, fund payout requests can be placed on T+1 day (next working day).

On expiry day, stock options either become “valuable” or “worthless”. For call options, if the stock price is higher than the strike price, the option holder can buy the stock at a lesser price and profit. If it's lower, the option expires worthless.

Nifty weekly contracts expire every Thursday of the week. If Thursday is a trading holiday, the previous trading day shall be the expiry or last trading day. All contracts expire at the normal market closing time on the expiry day or at a later time as decided by the exchange.

You could sell it the next day or carry till it's expiry date. Basically, call option is a contract, where you could buy the assets at a fixed price called the strike price. If you are taking a stock option, then the stock carries 100 shares of stock until it expires.

When the stock price equals the strike price, the option contract has zero intrinsic value and is at the money. Therefore, there is really no reason to exercise the contract when it can be bought in the market for the same price. The option contract is not exercised and expires worthless.

The LTP cannot be zero. The settlement price will be zero if the option's strike price is Out-of-The-Money (OTM), regardless of the LTP being 0.50 or 0.1.

Extrinsic value.

Extrinsic value refers to how time can impact the option's value, i.e. its premium. As the expiration date of the options contract approaches, there's less time for an investor to profit from the option, so time decay or theta, accelerates and the option loses value.