Expiry day in the derivatives market feels very different from a regular trading session. Prices of options move faster. Emotions run higher, and small decisions can suddenly have outsized outcomes. For some traders, expiry day is thrilling, almost addictive. For others, it is intimidating. Understanding how expiry day trading works is essential if you participate in options trading on exchanges like NSE or BSE.
Let us break it down in simple terms, what expiry day trading actually means, why traders focus on it so much, the benefits, and the risks you should respect before jumping in.
What is Expiry Day Trading?
Expiry day trading refers to trading options contracts on their last trading day, just before they expire and become worthless if expired out-of-the-money (OTM).
In India, index and stock options now expire weekly or monthly, depending on the contract. Once market hours end on expiry day, the option will either:
- Gets settled if it is profitable
- Or expires worthless if it is not
There’s no “holding it for later.”
Example : Imagine buying a movie ticket that is valid only until tonight. If you do not use it, it will be useless tomorrow. Options on expiry day work the same way. Whatever value is left must be realised today, or it will disappear.
How Expiry Day Trading is Different from Regular Trading Days ?
1. Time Decay Speeds Up
Options lose value over time. This is called time decay, and it accelerates on expiry day. On a normal trading day, an option will lose a small amount as time passes. On expiry day, that loss can happen within minutes.
- For option buyers, this means you must be right and sudden movement in the underlying asset is required quickly, not eventually.
- For option sellers, time decay works in your favour, as long as prices stay in range.
2. Volatility Suddenly Picks Up
Expiry day often brings sharp, sudden moves, even when there is no big news, because
- Traders are closing positions
- Institutions are adjusting hedges
- Algorithms are reacting to price levels
This push-and-pull creates sudden spikes and drops, especially in index options. You might see NIFTY moving in a tight range all morning, and then suddenly break 80-100 points in the last hour.
3. Trading Volumes Are Higher Than Usual
Most traders do not want to carry risk into the expiry settlement. So they exit. Which means, more buyers, more sellers and faster execution. High liquidity is good, but it also means price moves do not wait for you to think too long.
Read Also: What is Zero Days to Expiration (0DTE) Options and How Do They Work?
How to trade on Expiry Day?
Step 1. Pick a Clear Market View
Ask yourself one question: Is the market likely to move up, down, or stay in a range today?
Step 2. Choose the Right Option :
Since premiums decay quickly
- Traders often choose at-the-money (ATM) or slightly in-the-money (ITM) options
- Out-of-the-money options are cheap, but riskier as they can expire out-of-the-money (OTM)
It is like choosing between a cab that is already nearby versus one that might show up later. On expiry day, you do not have time to wait.
Step 3. Enter Early, Manage Actively
Many experienced traders prefer entering trades in the first half of the session when,
- Time value still exists
- Price discovery have more room to develop
But entry alone is not enough. Stop-loss and target discipline is very important on expiry day.
Step 4. Exit Without Greed
Holding till the last minute can be tempting. Sometimes it works. Often, it does not work. Successful expiry traders focus on,
- Capturing a part of the move
- Not getting every last rupee out of it
Read Also: Intraday Trading Rules and New SEBI Regulations
Benefits of Expiry Day Trading
1. Opportunity for Quick Profits : Expiry day offers the possibility of making returns within hours, sometimes minutes. Entries taken in the option at the right time can double in value, not because of a good market move, but because time and volatility work together.
That is why expiry days attract intraday traders looking for momentum.
2. Lower Capital Requirement : Since options near expiry are cheaper, you can take positions with less capital, and the risk is predefined (especially for buyers).
3. No Holding of Positions : By the end of expiry day, trades are settled, no overnight anxiety and no “what if” bothering your mind over the weekend. For many traders, this clarity is mentally refreshing.
Risks Involved of Expiry Day Trading
1. Fast Losses : What goes up quickly can fall even faster. A call option that is profitable at 11:30 AM can turn negative by 12:15 PM if the market falls.
2. Emotional Decision-Making : Rapid price movement creates fear of missing out, panic exits, and revenge trades. Expiry day intensifies emotions. Without a plan, it can lead to mistakes, too.
3. Overtrading : Because setups appear frequently, traders are tempted to take too many trades and lower their quality standards. Most expiry-day losses come not from one bad trade, but from too many average and unplanned ones.
Conclusion
Expiry day trading is not a shortcut to creating easy money. It lies somewhere between opportunity-rich for prepared traders and dangerous for impatient or emotional ones. If you approach expiry day with a clear plan, controlled risk, realistic expectations and a backtested strategy.
If you are not trading it yet, simply observing expiry days will sharpen your understanding of how markets really behave under pressure.
Frequently Asked Questions (FAQs)
Why do traders say expiry day is risky?
Because prices move fast and mistakes cost money quickly.
Can beginners trade on expiry day?
They can, but carefully. Most beginners are better off observing or trading very small quantities until they understand how quickly prices change.
What happens if I do not close my option on expiry day?
If it is profitable, it gets settled automatically. If not, it expires worthless which means the entire premium paid is lost.
When is the best time to trade on expiry day?
Many traders prefer the first half of the session.
Do I need advanced strategies to trade expiry day?
No, even simple strategies work if risk is controlled.
