What will happen if I don't square off my Option contract on expiry day?

The stock Options will get physically settled if its expires in the money. You can read more about the Physical settlement here

Index Options contracts are cash-settled

  • If your Option expires OTM, it expires worthless.

  • ITM Options are settled at their Intrinsic Value.

Intrinsic value is the difference between the strike price of the option and the current market price of the underlying asset. If your Long Option position expires ITM, the exchange will levy STT at 0.125% on the intrinsic value. There will be no STT on the Short position as STT is already paid when you sell the option.

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