Near expiry, time value shrinks towards zero and an option's sensitivity to price changes (gamma) is at its highest. The same index move can change an option's price by a very large percentage in a short time.
Three practical risks
- Percentage swings: a small move can wipe out or multiply a premium
- Liquidity: spreads can widen when everyone wants out at once
- Margin: requirements for sellers can change during the day
A disciplined approach
Set the maximum risk in rupees before the session, size the position from it, and set a hard stop for the day. If you cannot afford the worst case, the position is too big. Read the exchange's current rules on contracts and expiry before trading.
Educational content only. It is not investment advice or a recommendation, and trading carries a high risk of loss. Figures are illustrative.
Go deeper: NIFTY and BANKNIFTY: Expiry-Day Risk
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