What is Expiry Date in Indian Stock Market

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You’ve definitely heard the term “expiry” when it comes to pharmaceuticals or packaged foods, but some of you may be wondering What is Expiry Date in Indian Stock Market? It has something to do with futures and options. Let’s take a closer look at Expiry.

What is Expiry Date in Indian Stock Market?

The expiry date, as the names indicate, is the day on which a specific contract (typically a derivative contract) expires. Each derivative contract that is dependent on an actual asset including a share, commodity, or currency, has an expiry date, even if the actual security does not.

A derivative contract depending on an actual asset is only valid for a certain period of time before it expires. When the contract expires, it will be on the last working Thursday of the month.

The following example should assist to comprehend the situation.

Example

The Nifty50 index has three future contracts, notably:

  1. Near month contract expiring on June 24, 2021
  2. Next month contract expiring on July 29, 2021
  3. Far month contract expiring on August 26, 2021

A buyer can purchase any of these contracts until the end of the working day on Thursday, June 24, 2016. The first contract, i.e. the near-term contract, will be settled in cash on June 24, 2016.

Types of Expiry

The derivative contract is successfully settled among the buyer and seller on the expiry date. The settlement can actually occur in one of two ways:

  • Physical delivery

When the actual asset under a contract is physically delivered to the buyer (which is frequently the scenario with commodities), the seller of the contract gives the commodity to the buyer, who pays the entire price for it.

  • Cash settlement

This refers to the settlement of the shortfall among the current and derivative prices using funds rather than the actual asset.  In India, stock derivatives are generally settled through money.

Example 

Example
Example

If you buy a futures contract that permits you to buy 100 stocks of Xyz firm, you may then buy another futures contract that permits you to sell 100 stocks to close the contract. After that, you’ll have to pay the gap in the contract’s price.

Every contract is valued at a certain amount. The price of the actual share on the secondary stock market (cash market), where you purchase and sell shares immediately is associated with this.

As a result, every contract’s settlement value is determined by the share’s last-day closing price of the cash market.

Why does it affect share prices?

The value of futures and options contracts is determined by the actual equities or indices. Derivatives contracts, on the other hand, can influence stock values over short periods of time.

Assume that investors are bullish on the near-term outlook. As a result, the amount of ‘Buy’ contracts in the futures market rises in contrast to ‘Sell’ contracts.

As a result of this, cash market investors may begin to purchase stock in expectation of rising prices. When significant amounts of money are invested in a short period of time, the stock price jumps.

Other related Terms to Expiry

After understanding what is expiry date in Indian stock market, let’s checkout other related terms. These are some related Terms which are directly related to Expiry Date in Indian Stock Market:

Arbitrage Trading

Traders review their derivatives holdings a few days or a week before expiry to see if they are genuinely rewarding or not. These traders frequently hold stock in both the secondary stock market and the derivatives market.

To make money, they may purchase on the stock market and then sell on the derivatives market.Arbitrage trading is the term for this type of trading.

To avoid losses, these traders may choose to terminate or unwind their bets near the expiry date. In this instance, they may be able to sell the shares freely on the secondary market.

Note:

Other traders may act in the exact opposite manner. In either case, price changes result from the unexpected spike in trading. The secondary market becomes more volatile as a result of this.

Backwardation charges or Undha Badla

Throughout a bear market, when there are large sell or short positions, the seller must pay a badla to continue that short position forward, and the purchaser will gain credit in his account for his purchase position.

When next month prices are cheaper than near month prices, there is an undha badla. IT means there are numerous short sellers wishing to carry their short positions and fewer buyers trying to purchase next month positions.

As a result, short sellers will have to offer a badla to the purchaser.

Rollover of contracts

A contract rollover actually indicates that you square off your current month’s contract and start a new one for the next month. This is done by the trader primarily to keep the derivatives contract open after the close of the near month, and thus the position is moved to the following month, as is usually the case in a Bull market.

To put it another way, if a trader has a position in the near month, he will have to settle it on expiry day, but rather than exiting it to expire on its own (as is the case with non-physically settled contracts).

Note:

She/He will square off his near month position and take a new position in the next month before the market closes on expiry day.

As a result, the position will stay open in the following month, which will become the near month after the present near month expires.

Conclusion

It looks quite complicated if you are a newbie. However, once you start trading in F&O things will be more clear for you after real experience.

This is all from our side regarding what is expiry date in Indian stock market. Although, if you have any doubts you can just comment below.

Other Interesting blogs related to what is expiry date in Indian stock market:

What is Margin Shortfall?

Types of Derivatives Market

What is Span Margin and Exposure Margin?

FAQ

what is expiry date in Indian stock market - FAQ
what is expiry date in Indian stock market – FAQ

What is expiry in share market in hindi?

समाप्ति तिथि, जैसा कि नाम से संकेत मिलता है, वह दिन है जिस दिन एक विशिष्ट अनुबंध (आमतौर पर एक व्युत्पन्न अनुबंध) समाप्त होता है। प्रत्येक व्युत्पन्न अनुबंध जो एक शेयर, वस्तु या मुद्रा सहित वास्तविक संपत्ति पर निर्भर है, की समाप्ति तिथि होती है, भले ही वास्तविक स्टॉक न हो। एक वास्तविक संपत्ति के आधार पर एक व्युत्पन्न अनुबंध समाप्त होने से पहले केवल एक निश्चित अवधि के लिए वैध होता है। जब अनुबंध समाप्त हो जाएगा, तो यह महीने के अंतिम गुरुवार को होगा।

Futures and options expiry dates India?

The last Thursday of every month is when Nifty futures and Options contracts expire. Contracts expire on the prior trading day if last Thursday is a business holiday.

Option expiry time India

On the expiry day, all option contracts expire at 3:30 p.m., which is the typical market closing moment. On the final Thursday of the week, weekly option contracts terminate. If the last Thursday of the week is a trading holiday, the expiry day is the prior business day.

NSE F&O expiry date?

Monthly options contracts of Stocks, bank nifty & Nifty50 expire on the final Thursday of the month, whereas weekly options contracts expire on each Thursday of the week. Contracts expire on the preceding trading day if last Thursday is a business holiday.

What happens on F&O expiry day?

Contracts are adjudicated on the day they expire (or in the case of Options, they basically expire). You can do this in one of two ways: buy another contract that eliminates your current one, or pay off in cash.

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