Buy ATM options 2–3 days before expiry • Stop loss = 40–50% of premium • Only scalp on expiry day • Avoid fresh positions after 11:30 AM
Why Time Decay Matters on Expiry
An option's value comes from two components: intrinsic value and time value. On expiry day, time value drops to zero. That means if you buy an OTM option at ₹50 on Thursday morning and the market stays flat, by evening it will be worth just ₹5–10 — purely because of time.
This is called theta decay, and it accelerates sharply on expiry day. Buying options on expiry day is risky; selling them is profitable.
When Is Option Buying Justified on Expiry?
Only when there is a strong directional move — a news trigger, a breakout, or a clear gap up or down. In a random sideways market, buying options on expiry is simply burning money.
| Situation | Strategy | Risk |
|---|---|---|
| Strong trend from the open | Buy ATM | Medium |
| Sideways / flat market | Do not buy | High — avoid |
| Big news expected | Straddle / strangle | Medium |
| After 11:30 AM | Avoid fresh buys | Very High |
Gap up or down at 9:15–9:30 → trend confirms → buy ATM option → exit at 30–40% profit. Simple and effective.
Where to Place the Stop Loss
On expiry day, the stop loss should be 40–50% of the premium paid. If you bought at ₹100, exit at ₹50–60. Do not hold longer — theta decay will destroy the trade.
Traders tell themselves "the market will come back" and skip the stop loss. On expiry day the market rarely recovers — and even when it does, half the premium has already decayed.
Thursday Expiry Checklist
- Identify the trend by 9:15 AM
- Stick to ATM or one strike OTM
- Set the stop loss (40–50%) at entry
- Target a 50–80% profit
- No new positions after 11:30 AM
- Do not get greedy — book partial profits
Apply This Knowledge on a Real Account
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