What happens if the option contract is not squared off on the expiry date?
What happens if the option contract is not squared off on the expiry date? Find a clear answer in this FAQ by 021 Trade.
Option Contract Settlement on Expiry
If an option contract is not squared off on the expiry date, it will be settled by the exchange based on its type and moneyness:
- In-the-Money (ITM) Contracts:
These are either physically settled (in the case of stock options) or cash settled (for index options). The resulting profit or loss is credited or debited to your account. For stock options under physical settlement, you must have sufficient funds (for buying) or shares (for selling) to meet delivery obligations. - At-the-Money (ATM) Contracts:
If not squared off before expiry, ATM options expire worthless. The entire premium paid is lost. - Out-of-the-Money (OTM) Contracts:
These also expire worthless if not squared off on expiry, resulting in a total loss of the premium paid.
