What Happens If My Option Contract Is Not Squared Off on Expiry?

Index options are cash-settled automatically. What you owe or receive depends on whether the contract expires in or out of the money.

Written By Archit Sunat

Last updated 27 days ago

If You Bought Index Options

In-the-money (ITM): The contract is cash-settled at intrinsic value. STT of 0.125% is charged on the intrinsic value (not the full contract value), and brokerage applies on both the buy and the settlement.

Out-of-the-money (OTM): The contract expires worthless. You lose the entire premium you paid. Brokerage is only charged on the original purchase.

If You Sold (Shorted) Index Options

STT is charged only when you initiate the short position — there is no additional STT on expiry. You keep the premium collected, adjusted for the option's settlement value.

Key Takeaway

If you do not want to deal with expiry settlement mechanics, square off your position before the market closes on expiry day. This gives you full control over your exit price.