What Actually Happens When an Option Expires

The lesson most traders skip, and then sit for anyway

An option is a contract with an end date, and almost everything written for retail traders is about the part before the end date. Entry, premium, the greeks, what the chain is signalling. The last ninety minutes of the contract's life get a sentence, usually a warning, almost never a number. The reason is structural rather than lazy: the overwhelming majority of retail option positions are closed or rolled before the final bell, so the settlement machinery is invisible to almost everyone almost all of the time. Then one position is forgotten, or held deliberately because the trader believes the option is worth keeping, and the machinery arrives all at once.

It arrives differently depending on what the contract is written on, and that difference is not a nuance. An index option finishes as arithmetic. The exchange compares the settlement value with the strike, works out the difference, and moves cash. Nothing is delivered because there is nothing to deliver: an index is a number, not a thing. A single-stock option finishes as a transfer of property. If it is in the money, the holder of a call must pay the full strike value and receive the shares, and whoever is short that call must produce them. The premium that defined the size of the position on the way in has no role in defining the size of the obligation on the way out.

The scale of the population meeting this is not small. About 93% of individual traders in equity derivatives made net losses over FY22 to FY24, with aggregate net losses exceeding Rs 1.8 lakh crore (SEBI, September 2024). That figure is usually cited as a comment on strategy. It is at least partly a comment on operational literacy, because a material part of what separates a controlled loss from an uncontrolled one at expiry is knowing, in advance, which of the two settlement families you are holding and what it will do without asking you.

The rest of this page walks the mechanism end to end: what the contract settles against and why that number is not the last price you saw, what lands in the account in each case, what being assigned means and how the obligation is allocated, what happens when a delivery cannot be made, and the narrow band in which an option that finished in the money is nevertheless worth less than the cost of collecting it. Every rupee figure comes from a single deterministic model described at the end, and every regulatory point carries the source and the date it was checked.

Two features of that diagram deserve emphasis before the arithmetic starts. The first is that the automatic exercise of every in-the-money contract removes the idea of a decision at expiry. There is no moment at which a holder chooses to exercise; the clearing corporation does it for them, on the whole open long position, the instant the settlement value is known. The second is that the only branch with no consequence at all is the out-of-the-money one. Everything else moves money, and on the stock side, everything else moves property.

What the contract settles against, and why it is not the last price you saw

Ask a trader what an index option settles against and the answer is usually the closing level of the index. That is approximately right and operationally misleading, because the closing level is itself a constructed number and the construction is the entire point. Neither settlement value in India is a last traded price, and the reason is defensive. A single print can be made by a single order, and a settlement value that could be set by one order at the bell would be an invitation to set it. A value formed out of a whole window cannot be moved without trading real size for the length of the window, against everyone else trading it. The design is deliberately expensive to manipulate, and the price of that design is that the number which decides your contract is not a number you can watch resolve.

How the window is turned into a number changed on 3 August 2026, and the change is recent enough that a good deal of published material, including material published by the exchanges themselves, has not caught up. Under SEBI circular HO/47/11/11(3)2025-MRD-POD2/I/2765/2026 dated 16 January 2026, a closing auction session replaced the old method of averaging the last half hour of trades. In its first phase it applies to exactly one category of security: stocks in the cash segment on which derivative contracts are available. Everything else keeps the old averaging for now.

The session runs for twenty minutes, from 3:15 in the afternoon to 3:35, in four blocks of five minutes. The first block computes a reference price from the volume weighted average of trades between 3:00 and 3:15 and hands the security over from continuous trading. The second accepts both limit and market orders. The third accepts limit orders only and closes at a randomised moment somewhere between 3:28 and 3:30, system driven, so that nobody can time the last instant. The fourth matches. Orders during the session are confined to a band of three percent either side of the reference price, and the equity derivatives segment itself continues to trade until 3:40.

The closing price that emerges is the equilibrium price, defined as the price at which the maximum volume is executable. Where more than one price satisfies that, the circular breaks the tie by the smallest unmatched quantity in absolute terms, then by proximity to the reference price, and if the reference price sits exactly midway between the two candidates it becomes the closing price itself. If no equilibrium price is discovered at all, the reference price becomes the closing price. That last clause is the one worth remembering, because it means a thinly traded expiry does not fail to produce a settlement value; it produces one from a fallback that most traders have never heard of.

The consequence for derivatives is explicit rather than inferred. Paragraph 4.9.1 of the same circular amends the master circular for exchanges and clearing corporations dated 30 December 2024, and the amended text reads that the settlement price shall be the closing price of the underlying index on the day of expiry, with that closing price based on the closing prices of the index constituents; and that derivative contracts on a stock shall be settled at a price calculated on the volume weighted average of the closing prices of the stock across all exchanges. The implementing procedure, issued jointly by the exchanges and clearing corporations as required by the circular, arrived as clearing corporation circular NCL/CMPT/73370 dated 19 March 2026. Its annexure states the rule in two lines: for stock derivatives the final settlement price is the settlement price computed in the equity segment on expiry day, and for index derivatives it is the close price the exchange provides for that index.

So the old formulation, the last thirty minutes of volume weighted trading, is no longer the operative rule for a stock derivative. It has been replaced by the volume weighted average of auction closing prices across exchanges, with documented fallbacks: the reference price if no equilibrium was discovered, the previous day's settlement price if the stock did not trade at all. This is worth stating carefully because the older description is still in circulation. The clearing corporation's own settlement price page, checked on 15 August 2026, still carried the pre-auction wording and a last-updated stamp of 7 May 2024. So did its consolidated circular of 30 April 2026, which by its own terms consolidates only up to 31 March 2026 and therefore predates the go-live. Neither is wrong about the period it covers. Both are stale as a description of what will happen at the next expiry, which is a useful reminder that an exchange's summary page is not the same artefact as its operative circular.

How far apart do the settlement value and the last print get? A seeded model of a closing window gives an order of magnitude. Simulating driftless minute-by-minute paths across a thirty-minute closing window on an index at the 24,000 level, the distance between the last observation and an aggregate of the whole window comes out at about 21 index points on average in a calm session, and about 43 points at the ninetieth percentile. Raise the volatility of the window and the same figures become about 77 points and 159 points. These are properties of aggregating a window rather than reading the end of it, so they survive the change of method: an auction equilibrium price is also built from the window's interest rather than from its last tick.

That gap is the whole of what people call pin risk, dressed in arithmetic. If the strike you care about is further from the market than the gap, the two numbers agree and nothing interesting happens. If it is closer, they can disagree, and you find out which way afterwards. It is worth pausing on how unremarkable this is in every other respect: nothing has gone wrong, no rule has been broken, and the market has behaved perfectly normally. The contract has simply been resolved against a number that was still being formed while the screen was showing something else.

One further detail that trips people who reason from the cash market: none of the money moves on expiry day. The clearing corporation's settlement schedule puts the delivery settlement of futures and options contracts, clubbed with the cash-segment obligations of the same date, at funds pay-in by 11:00 and securities pay-in by 11:00 on the day after expiry, with funds paid out at 13:30 and securities at 15:30. Transaction tax on exercised options and on physically settled derivatives is collected on the same day, alongside the pay-in. So a delivery obligation created on a Tuesday afternoon is a funding requirement for Wednesday morning, not for Tuesday evening, and the account has to be ready before anyone has had time to react to the news that it exists.

Cash settlement: the simple half, stated precisely

Index options in India are European in style and the final exercise is automatic. The clearing corporation's consolidated rules for the derivatives segment, dated 30 April 2026, state that the exercise style of index option contracts is European, that all in-the-money contracts are automatically exercised on the expiry day, and that exercise settlement is effected for all in-the-money option contracts on the last trading day of the contract. There is no moment at which anybody chooses.

What lands is a difference. Take an illustrative index call struck at 24,000 with a settlement value of 24,168.00, on an illustrative lot of 65 units. The contract finishes 168.00 points in the money, so the holder receives 65 times 168.00, which is Rs 10,920.00, and the writer pays exactly that. There is no share, no depository entry and no funding requirement beyond the margin already posted. The only statutory charge attached to the event is securities transaction tax at 0.15 percent of the intrinsic value, payable by the purchaser, which on this contract is Rs 16.38.

The lot figure above is illustrative and deliberately so. Lot sizes are set by the exchange so that the value of one contract stays inside a band the regulator fixes, and the band itself moves. SEBI's circular of 1 October 2024 on the index derivatives framework raised the minimum from the Rs 5 lakh to Rs 10 lakh range that had stood since 2015, requiring instead that an index derivative contract have a value of not less than Rs 15 lakh at introduction and that the lot be set so the contract value on the review day falls between Rs 15 lakh and Rs 20 lakh. That applied to new index contracts introduced after 20 November 2024, and the exchange's contract specification still carried it when checked on 15 August 2026. Lot numbers have since moved in both directions as index levels moved, which is exactly why publishing one as a current fact is the fastest way to make a page stale. What is durable is the shape of the arithmetic: a lot is a multiplier, and the multiplier is set by the exchange, not by you.

Because everything here is a number rather than a thing, the failure modes are limited. A cash-settled position can produce a loss larger than expected, and for a writer it can produce a loss much larger than the premium, but it cannot produce an obligation of a different kind from the one you were already carrying. That is the entire reason index options dominate retail volume in India, and it is also why the other half of the market catches people out.

Physical settlement, computed rather than warned about

Single-stock derivatives in India are settled by delivery. The framework came from a SEBI circular dated 31 December 2018, numbered SEBI/HO/MRD/DOPI/CIR/P/2018/161, which followed the review of the derivatives framework issued on 11 April 2018. It phased the change in by market capitalisation: the bottom fifty stocks moved to physical settlement from the April 2019 expiry, the next fifty from the July 2019 expiry, and the remainder from the October 2019 expiry. Since then, every stock option and stock future in the Indian market resolves in shares.

The clearing corporation's settlement guidance sets out the mapping without ambiguity. A long call exercised becomes a buy position, securities receivable. A short call assigned becomes a sell position, securities deliverable. A long put exercised becomes a sell position, and a short put assigned becomes a buy. The quantity is the market lot multiplied by the number of contracts. There is no proportionality to how far in the money the contract finished, and no relationship at all to the premium.

Put numbers on it. Take an illustrative single-stock call struck at Rs 2,400 on a lot of 500 shares, bought for Rs 22.50 per share. The whole position cost Rs 11,250, which is the entire amount at risk and the entire amount most traders think about. The share settles at Rs 2,462.40 on expiry day, so the option finishes Rs 62.40 in the money and is worth Rs 31,200. A good outcome, on the face of it.

Now the settlement. The contract is exercised automatically, and the holder is obliged to buy 500 shares at the strike. That is Rs 12,00,000 of cash that has to be in the account, against a premium of Rs 11,250. The obligation is 107 times the money that was ever at risk, and 38.5 times what the option is actually worth. Nothing about the position changed between the afternoon and the evening. The settlement mechanism did.

The direction matters as much as the size. A long call obliges you to find cash; a long put obliges you to find shares you may not own, because exercising a put means selling 500 shares into the settlement. A short call obliges you to deliver shares. A short put obliges you to buy them. Three of those four obligations can fail for a reason that has nothing to do with being wrong about the market, and the fourth, the long call, fails simply because Rs 12,00,000 was not sitting idle in a trading account.

This is also why margin behaves strangely on stock options in expiry week, and the schedule is published rather than discretionary. Delivery margins are levied from four days before expiry on the lower of the potential deliverable position or the in-the-money long option position, computed at the margin rates that apply to the underlying share in the cash segment, and collected in stages: 10 percent of the delivery margin at the end of the fourth day before expiry, 25 percent at the third, 45 percent at the second and 70 percent at the last day before expiry. Those percentages have been in force since the expiries of January 2020, when they replaced a steeper 20, 40, 60 and 80 ramp, and they appear in the clearing corporation's consolidated derivatives rules of 30 April 2026. The practical effect is that a stock option position demands the most capital in exactly the week a trader planning to let it lapse is least expecting a call, and a trader who cannot meet the call is squared off at somebody else's convenience rather than their own.

Our guide to options selling and risk management introduces physical settlement from the writer's point of view and sets out why it changes the risk of writing stock options at all. This page takes the same mechanism and prices it.

Square off or let it settle: the arithmetic, both ways

There is a piece of folklore that has outlived the rule that created it. It says that an in-the-money option must be closed before expiry, because letting it be exercised attracts a punitive transaction tax. The folklore is repeated confidently and it is worth testing, because it is half right in a way that makes it dangerous: it is wrong about the instrument most retail traders hold and right about the one they mostly do not, for a reason that has nothing to do with the rate it complains about.

Start with the rates, which are the same for everybody and are fixed by statute. Under the securities transaction tax table in section 98 of the Finance (No. 2) Act 2004, as amended by section 159 of the Finance Act 2026 with effect from 1 April 2026, the sale of an option is taxed at 0.15 percent of the premium and falls on the seller. An option that is exercised is taxed at 0.15 percent of its intrinsic value and falls on the purchaser. A delivery-based purchase and a delivery-based sale of an equity share are each taxed at 0.10 percent.

Now the index case. Take the illustrative index call from earlier, 168.00 points in the money at settlement, quoted at 168.30 on the screen shortly before the close. Sell it and the tax is 0.15 percent of 65 times 168.30, which is Rs 16.41. Let it be exercised and the tax is 0.15 percent of 65 times 168.00, which is Rs 16.38. The two differ by Rs 0.03, because at expiry an option's premium is its intrinsic value and the two bases converge. Add the exchange transaction charge and turnover fee that a sale attracts and a settlement does not, and the full statutory cost is Rs 20.62 to sell against Rs 16.38 to settle. Settling is Rs 4.24 cheaper.

Sell earlier, with time value still in the price, and the arithmetic tilts further the same way. At a screen price of 195.00 two sessions before expiry, the tax on the sale is Rs 19.01, which is Rs 2.63 more than the exercise charge, because the tax follows the price and the price still contains something the settlement will not pay for. On an index option the folk rule does not merely fail, it points the wrong way.

Then the stock case, where the answer inverts. The exercise charge itself behaves exactly as it does on the index: 0.15 percent of Rs 31,200 of intrinsic value is Rs 46.80, entirely unremarkable. What follows it is not. The clearing corporation's securities transaction tax page, last updated on 1 August 2025, states that tax at the rates applicable to delivery-based equity transactions "shall also be applicable on the physically settled stock derivatives", payable by both the receiver and the giver of the securities. The word doing the work in that sentence is "also", and the consolidated derivatives rules of 30 April 2026 confirm the reading in their pay-in clause, which provides for tax on the exercise of options identified for physical settlement and on physically settled stock derivatives to be collected together on the day after expiry. Two heads, one collection.

Applied to this contract, the delivery leg alone attracts 0.10 percent of Rs 12,00,000, which is Rs 1,200.00. Add stamp duty at 0.015 percent on the receiving side, Rs 180.00, plus the exchange transaction charge and turnover fee on the delivery value and the goods and services tax on those two, and taking delivery costs Rs 1,424.89. If the shares are then sold out, the exit is an ordinary delivery sale and pays another Rs 1,277.25. The full round trip through settlement is Rs 2,748.94. Squaring the option off on the screen instead costs Rs 58.94. The settlement route is 47 times dearer, a difference of Rs 2,690.00 on a position worth Rs 31,200.

That comparison is worth stating twice in different units, because the multiple flatters and the percentage does not. As a share of the intrinsic value being collected, squaring off costs 0.19 percent and settling costs 8.81 percent. Nearly nine paise in every rupee of the option's value goes to the machinery of collecting it, and none of that is brokerage, which sits on top and is commercial rather than statutory.

One honest caveat, because a conclusion should not rest on its least certain input. Suppose a reader disputes the stacking and treats the exercise tax and the delivery tax as alternatives. Strip the exercise charge out entirely and the settlement route still costs Rs 2,702.14, which is 46 times the cost of an exit. The delivery tax on its own is Rs 1,200.00, which is 20 times the entire cost of squaring the option off. The verdict does not move, and it is the delivery leg rather than the exercise that carries it.

So the folk rule survives, but not for the reason it gives. The exercise charge is not punitive and has not been for a long time; it is charged on intrinsic value, which at expiry is what the option is worth anyway. What is punitive is the delivery that follows physical settlement, taxed at the equity delivery rate on the full contract value on both sides. Anyone who repeats the folk rule about index options is passing on a stale objection to a rate that was changed. Anyone who ignores it on single-stock options is ignoring a cost two orders of magnitude larger than the one being discussed.

Assignment: what it is, how it is allocated, and what lands

Exercise and assignment are the two ends of the same event. When an in-the-money long position is exercised at expiry, some short position in the identical contract has to take the mirror obligation, and the process of choosing which one is assignment. The clearing corporation's rule for options on individual securities, in its consolidated derivatives circular of 30 April 2026, is that the exercise style is European, that all in-the-money contracts are automatically exercised on the expiry day, that long positions at in-the-money contracts are assigned to short positions in the same series on a random basis, and that exercised contracts are assigned and allocated to clearing members at the client level, again on a random basis.

The word "random" is a fossil, and understanding why is useful. Random allocation matters when the quantity being exercised is smaller than the quantity outstanding on the short side, because then some writers escape and a rule is needed to decide which. That situation arises where holders can choose not to exercise. In the Indian equity segment they cannot, and the drafting shows it: the stock-option clause says every in-the-money contract is exercised and attaches no exception, where the equivalent clause in the commodity segment still carries an explicit carve-out for contracts close to the money and for contrary instructions. Since the open long quantity and the open short quantity in a series are equal by construction, the exercised quantity is the entire short side. There is nothing for the randomisation to spare. If you are short an in-the-money strike at the close, you are assigned, in full.

That is a more uncomfortable position than the American-style intuition suggests, because it removes the consoling thought that assignment is a lottery you might win. It also relocates the uncertainty. The writer is not uncertain about whether assignment follows from being in the money; they are uncertain about whether they are in the money, and that is decided by a settlement value published after the close.

What lands depends on the direction. An assigned short call must deliver 500 shares and receives Rs 12,00,000 for them, which is a good outcome if the shares were already owned and bought below the strike, and a poor one otherwise. An assigned short put must buy 500 shares at the strike and fund Rs 12,00,000 to do it, receiving shares that are by definition worth less than that. In both cases the obligation is the contract value, and in both cases the premium collected is a small fraction of it. On the contract used here, a writer who owned the shares and was assigned gives them up at Rs 2,400 when they are worth Rs 2,462.40, an opportunity cost of Rs 31,200 against a premium of Rs 11,250, for a net loss of Rs 19,950 on the settlement itself.

The failure case is where the numbers stop being ordinary. A short call assigned on shares the writer does not hold produces a delivery shortage, and the derivatives rules deal with it by pointing at the cash market. Failure to deliver triggers a buy-in auction conducted by the clearing corporation on the cash-segment auction schedule; failure to procure the shares in that auction is closed out; and the close-out price, the rules say, is the close-out price of the security as determined in the capital market segment. Follow the cross-reference to the cash-segment rulebook of the same date and the formula appears, traced to a SEBI circular of 30 January 2002: close out at the highest price prevailing across the exchanges from the day of trading until the auction day, or twenty percent above the settlement price on the auction day, whichever is higher. Where the shortage is internal to a member and handled through the clearing corporation's own auction mechanism, a facilitation fee of one percent of the value of the securities is levied on top; on this contract that fee alone is about Rs 12,312.

Price that floor. Twenty percent above a settlement price of Rs 2,462.40 is Rs 2,954.88. The writer receives Rs 12,00,000 for shares valued at Rs 14,77,440 in the close-out, a shortfall of Rs 2,77,440. Against a premium of Rs 11,250, that is a net loss of Rs 2,66,190, or about 24 times the premium. And that is the floor rather than the outcome: if the share has run further than twenty percent above the settlement price by the auction day, the higher of the two limbs applies instead. This is the specific mechanism behind the general warning that writing single-stock options is not the same activity as writing index options, and it is why the two should never be reasoned about with the same mental model.

The band where finishing in the money is not worth it

An option that finishes in the money has value by definition. It does not follow that collecting the value is worth the cost of collecting it, and on the stock side there is a measurable band in which it is not. The reason is a mismatch of shapes. The value of an in-the-money option scales with how far in the money it finished. The cost of physically settling it scales with the contract value, which does not move at all. Divide a nearly fixed cost by a value that can be arbitrarily small and there is always a level below which the arithmetic goes negative.

On the illustrative contract, settling and then selling the shares out costs about Rs 2,670 in statutory charges no matter how marginal the finish. Set that against the intrinsic value and the crossing point is at Rs 5.35 per share, which is Rs 2,676.50 for the lot and 0.22 percent of the strike price. Finish less than that in the money and the settlement machinery consumes the entire value of the option and then some. Finish at Rs 2.00 in the money, a contract worth Rs 1,000 on paper, and the settlement route returns Rs 1,672.31 less than nothing. At Rs 5.00 in the money it is still negative, by Rs 176.12. Only past Rs 10.00 does the exercise start clearly paying for itself, and even there it surrenders Rs 2,682.46 of a Rs 5,000 contract to the charges.

Set the same contract next to the exit route and a second, cleaner number appears. Squaring off costs a percentage of the proceeds, so it can never take more than the proceeds and there is no band at all. The position breaks even at a settlement price of Rs 2,422.54 if it is sold and at Rs 2,427.91 if it is settled, a gap of Rs 5.37 per share or Rs 2,684 per lot. Between those two prices the position makes money on one route and loses it on the other, and the only difference between the two worlds is whether somebody remembered to press a button.

The index side has no equivalent band, and it is worth being explicit about why. The only charge on an index settlement is transaction tax at 0.15 percent of the intrinsic value. A cost defined as a fraction of the thing it is charged on cannot exceed the thing, so an in-the-money index option is always worth more than the cost of settling it, however marginal the finish. The band is not a property of options. It is a property of the physical settlement machinery.

Now the writer's version of the same problem, which is worse because it is decided after the fact. A writer sitting near a strike at the close does not know their outcome, because the settlement value is still being formed. Using the same seeded model of the closing window, a strike that the last print shows ten index points in the money finishes on the other side of the settlement value in about 35 percent of runs in a calm session, and in about 46 percent of runs in a volatile one. Widen the distance to forty points and the calm case falls to about 6 percent while the volatile case is still about 34 percent. At eighty points the calm session is effectively settled, at about 0.1 percent, and the volatile session is still uncertain at about 20 percent.

That is the band, quantified: in a calm expiry the screen and the settlement value can be relied on to agree once the strike is roughly 43 points away, which on an index at this level is about 0.18 percent. In a volatile expiry the same confidence requires roughly 159 points, about 0.66 percent. Inside those distances a writer is holding an unresolved position and cannot make it resolved by watching harder. On an index that means an unknown cash amount. On a single stock it means not knowing whether a delivery obligation is about to appear. Expiry-day behaviour more broadly, including how the last session trades and why the near-strike gamma is so violent, is covered in our page on expiry day trading; the concern here is narrower and entirely about what the settlement does afterwards.

Do-not-exercise instructions, and why the safety net is gone

There used to be an answer to the problem in the previous section, and it is worth understanding because its absence is now part of the operating environment. A do-not-exercise instruction was exactly what it sounds like: a holder of a marginally in-the-money stock option could tell the exchange, through their broker, not to exercise it. The contract would be allowed to lapse as though it had finished out of the money, the small intrinsic value would be surrendered, and the far larger delivery obligation would never be created. It was a mechanism for choosing to lose a small certain amount rather than accept a large uncertain one.

The facility existed because of a tax rule that has since changed. In an earlier era the transaction tax on an exercised option was charged on the full settlement value rather than on the intrinsic value, which made exercising a marginally in-the-money contract genuinely ruinous and made an opt-out necessary. Once the charge was rebased onto intrinsic value the original justification weakened, and physical settlement supplied a different rationale for keeping it: not the tax, but the delivery. The facility was withdrawn, restored, and withdrawn again.

Its present status is unambiguous, and the way it was withdrawn is itself instructive. Clearing corporation circular NCL/CMPT/55330 dated 20 January 2023 is titled as guidelines for the net settlement of the cash and derivatives segments on the expiry of stock derivatives. Buried in it, as clause (g), is a single sentence: the facility of do not exercise available for stock options on the expiry date shall be discontinued. The changes, the circular says, take effect from the March 2023 expiry. A safety net that had been argued over for years was removed in one line inside a circular about something else. The clearing corporation's settlement guidance, checked on 15 August 2026, still answers the question the same way: the facility, previously available for stock options on the expiry date, has been discontinued with effect from the March 2023 expiry of derivative contracts.

The consequence is a change in where the responsibility sits, and it is the single most important operational fact on this page. Before the withdrawal, a trader who misjudged a marginal position had a fallback that could be used after the close. After it, the only way to avoid physical settlement is to close the position while the market is still open, which means the decision has to be made before the settlement value exists and therefore before anyone knows whether it was necessary. A trader holding a stock option near the strike at 3:15 in the afternoon is choosing between a certain small cost, closing a position that may turn out to have been worthless, and an uncertain large one. The choice is not obvious, but it has to be made in that window and it cannot be revisited.

It also changes what "letting it lapse" means as a plan. Letting an out-of-the-money option lapse is free and sensible. Letting a stock option lapse when it might not be out of the money is not a plan at all, it is a bet on the settlement value, taken without a position size and with an obligation attached to the losing side. That is a considerably stranger thing to do than most people realise they are doing when they simply do nothing.

What to establish before the last session, with a position open

Everything above collapses into a short list of things that have to be known in advance, because none of them can be established after the close. The list is deliberately mechanical. It is not a strategy and it does not tell anyone what to trade; it is the set of facts that determine what will happen to an existing position without anybody doing anything.

Two of those rows carry most of the weight. Knowing the settlement family is the difference between a position whose worst case you have already sized and one whose worst case is the contract value. Knowing the cost of each route turns a decision that usually gets made by inertia into one that gets made by arithmetic, and the arithmetic is not close: on the stock side, settling costs about 47 times what exiting costs, and on the index side settling costs slightly less than exiting. Those two facts point in opposite directions, which is precisely why a single habit, always close everything, is a worse rule than knowing which instrument you hold.

The larger point is that expiry is the one moment in an option's life when the instrument acts on its own. Everything else about trading it is a choice. This is the part that happens whether or not anyone is paying attention, and the only defence is to have established the facts while there was still time to act on them. Building that kind of operational discipline into a process, rather than relying on remembering it under pressure on a Tuesday afternoon, is the method we teach.

Every rupee figure comes from a single deterministic model, seeded so it reproduces identically on each run. Two illustrative contracts carry the whole page: a single-stock call struck at Rs 2,400 on a lot of 500 shares, bought at Rs 22.50 and settling at Rs 2,462.40; and an index call struck at 24,000 on a lot of 65 units, settling at 24,168.00. Both lot sizes are illustrative and are labelled as such, because exchange lot sizes are revised periodically and a published lot number goes stale.

Charge rates are taken from the site's verified statutory research and are current as at 15 August 2026. Securities transaction tax: 0.15 percent of premium on the sale of an option, 0.15 percent of intrinsic value on an exercised option, and 0.10 percent on each of a delivery-based purchase and sale, all set by section 98 of the Finance (No. 2) Act 2004 as amended by section 159 of the Finance Act 2026 with effect from 1 April 2026. Stamp duty: 0.015 percent on the buy side of a delivery transfer under Article 56A of Schedule I to the Indian Stamp Act 1899. Exchange transaction charges: Rs 3,250 per crore of option premium turnover, and Rs 307 per crore per side in the cash segment, the latter effective 1 March 2026. Turnover fee: Rs 10 per crore under the SEBI (Stock Brokers) Regulations 2026. Goods and services tax at 18 percent is applied to the exchange charge and the turnover fee and not to transaction tax or stamp duty. Brokerage is commercial rather than statutory and is excluded throughout, so every cost figure on this page is a floor.

The closing-window figures come from a seeded simulation of 200,000 driftless minute-by-minute paths across a thirty-minute window on an index at the 24,000 level, at two volatility settings described in the text as calm and volatile. They illustrate the arithmetic of aggregating a window rather than reading its last observation, and they are not estimates of any actual index. Where a mechanism admits more than one reading, the page states the conservative alternative and shows that the conclusion survives it.

Regulatory points are drawn from primary documents and were each re-read on 15 August 2026. The closing auction session, its timings, its price band, its equilibrium rule and its amendment of the derivatives settlement price come from SEBI circular HO/47/11/11(3)2025-MRD-POD2/I/2765/2026 dated 16 January 2026; the implementing procedure from clearing corporation circular NCL/CMPT/73370 dated 19 March 2026. Physical settlement of stock derivatives and its phase-in come from SEBI circular SEBI/HO/MRD/DOPI/CIR/P/2018/161 dated 31 December 2018, following the framework review of 11 April 2018. Exercise style, assignment, delivery margins, shortage handling and the timing of transaction tax collection come from the clearing corporation's consolidated derivatives circular NCL/CMPT/73997 dated 30 April 2026, with the close-out formula taken from its cash-segment counterpart of the same date and traced to a SEBI circular of 30 January 2002. The withdrawal of the do-not-exercise facility is clause (g) of NCL/CMPT/55330 dated 20 January 2023. The minimum contract value band comes from SEBI's index derivatives framework circular of 1 October 2024. Where an exchange summary page contradicts an operative circular, the page says so and follows the circular.

All results are illustrative and simulated. They are not a track record, not a forecast, and not an indication of what any position would produce in a live account. Charge rates, lot sizes, settlement timetables and exchange procedures are all revised from time to time; confirm them at source before relying on any figure here.

• What a lot size is, and why it keeps changing →
• The strike price, and what it fixes →
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• A framework for reasoning about options →