The Indian stock market is evolving at a rapid pace, drawing in a flood of new investors eager to tap into its potential. Amid this growth, one concept that frequently buzzes in trading circles is the ‘expiry’ of futures and options (F&O) contracts. Terms like ‘weekly expiry’ or ‘monthly expiry’ are commonplace, but do you truly understand what they mean and why they matter to your investment strategy?
Futures and options are derivative instruments with a fixed lifespan. The expiry date marks the end of that lifespan, after which the contract ceases to exist. Picture this: you’ve bought a Nifty options contract expiring on a specific date. Come that day, it automatically settles or expires worthless if not closed earlier. Traders have the flexibility to exit positions before expiry or let them settle on the final day.
Historically, the market stuck to monthly expiries, occurring on the last Thursday of every month. This gave investors ample time to craft long-term strategies. But as trading volumes surged and demand grew for more frequent opportunities, weekly expiries entered the scene. In 2016, the National Stock Exchange (NSE) pioneered weekly options for Bank Nifty, later extending it to Nifty and select stocks.
Weekly expiries mean contracts wrap up every week on a designated day—now shifted from Thursday to Tuesday across all F&O contracts by NSE. This change aims to streamline trading and reduce end-of-week volatility.
The key differences? Weekly expiries are short-lived, breeding high volatility that thrills short-term traders chasing quick profits. Monthly ones, by contrast, offer stability, suiting those building extended positions. Both provide solid liquidity in indices like Nifty and Bank Nifty.
Market veterans highlight expiry days as high-stakes events, often riddled with sharp swings. These can spell opportunity or peril for traders. Big players use F&O for hedging portfolios against risks, integrating both weekly and monthly cycles into their playbooks.
For retail investors, grasping expiry dynamics is non-negotiable. Rapid market shifts on these days can wipe out unprepared traders. Experts urge beginners to study the mechanics, risks, and tactics thoroughly before diving in with small stakes to build experience.