WHAT IS EXPIRY DAY IN FNO AND HOW TO TRADE ON EXPIRY DAY

Introduction

In the Indian stock market, the last Thursday of the month is the expiry day for monthly futures and options. Traders must settle their positions on or before the expiry day. In recent times, the Nifty and Bank Nifty Index also have a weekly expiry. The weekly contracts expire every Thursday. Weekly expiries offer a lucrative opportunity for active traders. If the stock market is closed on a Thursday, the expiry day is the previous trading day.

It is safe to trade options on the expiry day. You only need to know the correct way to execute options trades and the right range between which the market will expire.

How to trade on Expiry day?

For options trading, you choose to trade in and around the expiry day. There are various expiry trading strategies that you can deploy to exploit options contracts. If you have a grip on the expiry day trading strategies, it is not difficult to go ahead with options trading near expiration.

In stock trading or futures trading, trades are generally directional. However, when it comes to options trades, they are non-directional bets. The effect can be very significant as there is no need to time entries with accuracy. There are chances for error, which can be very beneficial.

• Expiry day is a critical trading day as the market is quite volatile.
• If you use a chart for trading, you can be whipsawed on the expiry date. The trend-following indicators can give out a buy signal, but the market begins to fall on the next bar. It is the same for the sell signal as well
• Losing money on the expiry day is common. However, you can also earn significant profits if you trade effectively. The stock market is likened to a sword. You must know the right way to handle it.
• With the expiry day Nifty options trading strategy, you can grow Re. 1 to something between Rs. 20 and Rs. 50, and at times, you can go up to Rs. 100 or more. That’s how the expiry day Nifty option strategy works. To trade Nifty on expiry day, you do not have to be a pro technical analyst. You only need to understand where Nifty is going to expire.
• To manage your money effectively while trading on the expiry day, avoid trading over 2% of your capital -. The strategy limits your maximum loss to the premium you pay for the option.

If you hold the options contract and they expire worthlessly, you lose the total premium along with any taxes and brokerage charges. Therefore, you must square off your position in the options before the expiration date.

Effect of expiry date on stock price

The expiry date refers to the settlement of F&O contracts. As a result, the stock market undergoes significant volatility. The stock market can turn bearish or bullish depending on the nature of the derivatives contract settled on the expiry date.

Another factor that affects prices in the stock market near the expiry date is arbitrage trading. In arbitrage trading, F&O traders evaluate the performance of the underlying assets of the contracts before the expiration date. Many futures & options traders execute trades on the secondary markets to maximize profitability. 

Wrapping up

Before you begin futures and options trading, know about the expiry date of the derivatives contracts you purchase. It is the expiry date that decides the settlement of your contracts, and it is vital to know what happens on the expiry date. Additionally, every stock trader must understand how the expiry date affects the stock market as a whole. Looking at the enhanced volatility near the expiry date, an investor can book short-term profits or avoid trading to cut down on losses.

Disclamer:  ICICI Securities Ltd. ( I-Sec). Registered office of I-Sec is at ICICI Securities Ltd. - ICICI Venture House, Appasaheb Marathe Marg, Prabhadevi, Mumbai - 400 025, India, Tel No : 022 - 6807 7100. The contents herein above shall not be considered as an invitation or persuasion to trade or invest.  I-Sec and affiliates accept no liabilities for any loss or damage of any kind arising out of any actions taken in reliance thereon. The contents herein above are solely for informational purpose and may not be used or considered as an offer document or solicitation of offer to buy or sell or subscribe for securities or other financial instruments or any other product. Investments in securities market are subject to market risks, read all the related documents carefully before investing. The contents herein mentioned are solely for informational and educational purpose.