If your call option expires in the money (ITM), meaning the stock price is above the strike price, it's usually automatically exercised by your broker, forcing you to buy 100 shares of the underlying stock at the lower strike price, potentially resulting in a profit (stock price - strike price - premium paid) if you have the capital; otherwise, the broker might sell the contract to avoid unfulfilled obligation, but you'll generally take ownership of shares or face an assignment.
If you hold an in-the-money long call on the expiration date, the underlying is booked long in your securities account at the strike price. If the long call is out of the money or at the money, it expires worthless and no exercise takes place.
In the case of options contracts, you are not bound to fulfil the contract. As such, if the contract is not acted upon within the expiry date, it simply expires. The premium that you paid to buy the option is forfeited by the seller. You don't have to pay anything else.
Call sellers generally expect the price of the underlying stock to remain flat or move lower. If the stock trades above the strike price, the option is considered to be in the money and will be exercised. The call seller will have to deliver the stock at the strike, receiving cash for the sale.
If an option contract is out of the money, the option expires worthless and is very likely to NOT be exercised. The option is simply removed from the account at expiration and nothing additional is paid. The option holder did not exercise their right to purchase/sell the underlying security.
WHEN TO CLOSE A LONG CALL OPTION. Buyers of long calls can sell them at any time before expiration for a profit or loss, but ideally the trade is closed for a profit when the value of the call exceeds the entry price for purchasing it.
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.
If your options position expires out of the money, it will expire worthless and will not be exercised or assigned.
The 3-5-7 rule in trading is a risk management guideline: risk no more than 3% of capital on one trade, keep total risk across all trades under 5%, and aim for winning trades to be at least 7% larger than losing trades (or a 7:1 ratio) to ensure profits outweigh losses and protect capital. It promotes discipline, reduces emotional trading, and balances potential high rewards with controlled risk, making it great for beginners.
You sell call options when bearish on a stock's outlook. "Naked" options selling carries a much higher risk than "covered" positions, where you own the underlying stock as protection. That's because you might be on the hook for buying a stock just as its price is rising more than you anticipated.
On NSE, open options positions that are not squared off by expiry will be settled automatically by the exchange. The final outcome depends on whether the option finishes in the money (ITM) or out of the money (OTM) and whether it is an index option (cash settlement) or a stock option (physical delivery when ITM).
Hold until expiry and the option closes out-of-the-money. The option expires worthless which means a loss of the initial purchase price (i.e., option premium plus commission). For American-style options, you can exercise before expiry. Again, you must have sufficient cash or margin available to make the stock purchase.
If you are holding long call options and it expires the In-the-money (ITM), the contract will be exercised to you and if you don't have funds to buy the shares, ICICIdirect will be forced to buy the stock on your behalf and sell next day.
PM-settled index options stop trading at 4pm ET on day of expiration. On the day of expiration, you'll have until 3 pm to open a same-day expiring contract, and until 3:30 pm (Stocks & ETFs) and 4 pm (Indices) to close a same-day expiring contract.
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However, if options expire in-the-money, the seller of the option may have to pay the difference between the strike price and the market price of the underlying asset, which could result in a loss.
When options expire, the outcome depends on whether they are ITM or OTM. ITM options are exercised or cash-settled, allowing the holder to realize their intrinsic value, while OTM options expire worthless, resulting in the loss of the premium paid.
Hence, in the last 5-7 days before an options' expiry, it is not a good idea to buy and hold options overnight. There is also an additional risk of a gap up or a gap down which could result in your stop loss order not getting triggered, in case you had placed one.