In the share market when trading options, you might have come across the word Expiry. But do you know what is expiry in the share market, and why is it so important for a trader to trade options?
In this article, we will be discussing the meaning and importance of different expiry in the share market.
What is Expiry in Options?
The expiry date refers to the date on which an options contract becomes null and void, meaning the holder can no longer exercise their right to buy or sell the underlying asset.
In India, options contracts have a predetermined expiration cycle. The National Stock Exchange of India (NSE) follows a quarterly, monthly, and weekly expiry cycle.
Here are different weekly expiries :
What Happens on Weekly Expiry in Share Market?
The concept of expiry is important in options trading because it adds a time limit to the rights granted by the option contract. As the expiration date approaches, the value of the options contract may fluctuate significantly due to various factors such as the price movement of the underlying asset, market volatility, and time decay.
Expiry gives a helping hand in selecting the appropriate strategy and managing risk effectively. Traders need to consider their investment objectives, option trading time horizon, and expectations for the underlying asset’s price movement within the options contract’s lifespan.
To extend your options position beyond the current expiry date, you have the option to roll over the positions. Rolling over involves closing the existing options position before expiry and simultaneously opening a new position with a later expiry date. This strategy allows you to maintain their exposure to the underlying asset while managing the time decay
Theta decay happens as soon as an option starts reaching expiry. When the expiration date approaches, the time value of the option contract decreases, which affects the overall value of your options contract.
DNE in Stock Options
DNE stands for Do not exercise. The NSE implemented this to allow traders to instruct the broker if they do not wish to exercise their right to buy or sell a stock.
After March 30, 2023, NSE discontinued DNE for futures and options resulting in brokers not being able to exercise options contracts on behalf of clients. But this facility will continue for index options.
Expiry determines the lifespan of an options contract, adding a time limit to the rights and potential profits associated with it. As the expiration date approaches, the value of the options contract can fluctuate significantly due to factors such as time decay, market volatility, and the price movement of the underlying asset.
We at Stock Patshala make you understand expiry and its implications, which can help traders develop effective strategies, manage risk, and make informed investment decisions.
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