The outcome depends on whether your option is a stock option or index option, and whether it expires In-The-Money (ITM), Out-Of-The-Money (OTM), or At-The-Money (ATM).
Stock options
If you don't square off your stock option contract by expiry date, the outcome depends on whether it is In-The-Money (ITM), Out-Of-The-Money (OTM), or At-The-Money (ATM):
- Stock options that are ITM undergo physical settlement.
- Stock options that are OTM or ATM expire worthless.
Index options
Index options are cash-settled because the underlying asset is an index, not a physical stock or commodity. If you don't square off your index option contract by expiry date, the outcome depends on whether you bought or sold it and if it is ITM, OTM, or ATM:
If you bought index options
Contracts expiring ITM:
- Your ITM option contracts are automatically exercised on expiry.
- Your profit or loss will be settled in cash based on the difference between the strike price and the closing price of the index on the expiry day.
- Securities Transaction Tax (STT) of 0.125% of the intrinsic value applies.
- You will be charged brokerage on both sides when you buy the options and when they are settled on expiry day.
Contracts expiring OTM or ATM:
- Your OTM and ATM option contracts expire worthless.
- You will lose the entire amount you paid as a premium.
- You will be charged brokerage only on one side when you purchase the options, not when they expire worthless on expiry day.
If you sold or shorted index options
Contracts expiring ITM:
- Your ITM option contracts are automatically exercised on expiry.
- Your profit or loss will be settled in cash based on the difference between the strike price and the closing price of the index on expiry day, and the premium you received.
- STT is only on the sell side. Therefore, you won't be charged STT again on expiry.
- You will be charged brokerage on both sides when you buy the options and when they are settled on expiry day.
Contracts expiring OTM or ATM:
- Your OTM and ATM option contracts expire worthless.
- You retain the entire premium amount.
- You will be charged brokerage only on one side when you sell the options, not when they expire worthless on expiry day.