What is the "expiry" of a contract?

Expiration is when things end! Medicine expires, food items expire, people expire and contracts expire…

Expiration Day in the financial world is when a Futures/Options contract ends and ceases to exist. It happens on the last Thursday of every month.

It is the day on which a derivative contract ceases to exist. No more trading can happen in that contract of the asset after that day. Expiration day stands for the day on which buyers and sellers can perform their rights/ obligations on the underlying asset.

In a Futures derivative, there is an obligation for both Buyers and Sellers on the underlying asset- Buyers have an obligation to buy the asset and Sellers have to sell the asset without fail.

In Options derivative, Buyers have rights and no obligation- Buyers can ‘choose’ on whether to buy the asset or not. Sellers have only obligations- it is compulsory for the Sellers to sell the asset on the expiry day.

Though all the above is text book meaning of Expiry Day, in Indian markets, there is no physical settlement of the asset. Only cash settlement happens.

Forward Markets can have any future date as settlement or agreement date. (decided mutually between the buying and selling parties)

But, the contracts in Futures/Options market have a predefined date on which the contract will be settled or cease to exist. This particular date is called Expiry date. In India, NSE/BSE has stipulated it to be last Thursday of every month. In foreign markets, it would be different.

Any FnO contract will have a specific expiry date attached to it, which denotes the contract is only valid upto that date. This is the expiry date. So on expiry date, exchange facilitates to settle all such contracts and close the deals between buyers and sellers. In India, cash settlement take place in F&O Equity and Currency Segments. Few items in Commodity Segments too like Crude Oil etc. are cash settled.