Impact of Daily Expiry on Stock Markets: Check Daily Expiry Indices Day

From a situation when we had all contracts of Nifty and Sensex expiring on Thursdays, we not have a totally multi-level expiry pattern. In fact, while there is not much change on the monthly and the quarterly F&O contracts, most of the changes have happened in the weekly contracts. The outcome of all the shifts is that there will be an expiry of some NSE or BSE derivatives contract on each and every trading day from Monday, all the way to Friday. Since, the clearing and settlement in all the cases happens on a T+1 basis, there will also be an expiry settlement on each of these days of the week.

Broadening the length of the expiry for F&O

Now, what the exchanges have done is to synchronize the weekly and monthly contracts for the contracts that are not among the most liquid contracts. For example, the highly liquid contract like Bank Nifty has been allowed to maintain different expiry dates for weekly contracts and for monthly and quarterly contracts. However, in the case of the Nifty contracts, more from a perspective of tradition, the weekly and monthly expiries have been kept as Thursday only. In the case of Nifty Mid-cap Select, the weekly and monthly contract expiries have been shifted to Monday while in the case of Nifty Financial Services the weekly and monthly contracts have been shifted to Tuesday. Till yesterday, Friday was the expiry day for the BSE with the BSE Sensex Futures and the BSE Bankex futures expiring on Friday. However, in a circular issued on August 30, 2023 by the BSE, the expiry of the BSE Bankex contracts has been shifted from Friday to Monday, effective from October 21, 2023.

Bank Nifty is the only contract with multiple expiries

One of the most liquid contracts to be traded in F&O, the NSE Bank Nifty contracts, will be the only contract wherein the weekly contracts will expire on Wednesday while the monthly and the quarterly contracts on Bank Nifty will continue to expire on Thursday. For all other contracts on the NSE, the weekly and the monthly contracts have been synchronized. In the case of Bank Nifty, if Wednesday is a trading holiday, then the expiry day is the previous trading day. However, for the Bank Nifty, for monthly and quarterly contracts, there will be no change. They will continue to expire on the last Thursday of the expiry month. Even in these cases, if the last Thursday is a holiday, the weekly and quarterly expiries will happen on the previous trading day. The shift in weekly bank Nifty options expiry to Wednesday is effective from September 04, 2023.

No change in the NSE Bank Nifty contract cycle

However, it must be reiterated that there will not be any change in the number of contracts available on the Bank Nifty at any point of time, even after the expiry dates are modified. That means; the Nifty Bank will continue to have 4 weekly expiration contracts (excluding monthly contracts), 3 monthly expiration contracts and 3 quarterly expiries (March, June, Sept & Dec cycle). For the weekly expiration, the expiry date will be Wednesday while for the monthly and quarterly contracts, it will continue to be the last Thursday of the respective month in question.

This is going to create an interesting situation. Due to this shift, the first three expiries in the month of September 2023 will be on Wednesday while the last one (monthly expiry) would be on Thursday. It may be recollected that earlier the NSE wanted to shift the Bank Nifty expiry to Friday, but shelved the idea after they realized that it would clash with the BSE Bankex which had set Friday as the expiry of the Bankex. However, now BSE has also shifted its Bankex expiry to Monday, while retaining its Sensex expiry on Friday every week.

Every day expiry and what does that really mean?

The reshuffle in expiry days by the NSE and the BSE in its F&O contracts means that derivative traders will have to deal with an expiry day on every weekday; between Monday and Friday. For example; Mondays will begin with Nifty Midcap Select expiry and Tuesdays will see the expiry of the Nifty Financial Services Index. For Nifty Mid-cap Select and Nifty Financial Services, both weekly and monthly expiries will happen on the same days only.

Then, Wednesdays will have the huge Nifty Bank expiry but only for the weekly contracts since the monthly Bank Nifty expiry will continue on Thursday. The Thursday of each week will see the highly popular Nifty-50 index weekly contracts expiring. Nifty monthly contracts will also expire on Thursday, while the Bank Nifty also has its monthly expiry on Thursday. The last day of the week, Friday, is currently reserved for the BSE's relaunched Sensex and Bankex derivatives expiry. However, post October 21, 2023, only Sensex weekly contracts will mature on Friday, since the Bankex contracts are being moved to Monday.

Who will benefit from such multiple expiry days?

These are early days, but we can hazard some estimates on some of the key beneficiaries of such a move. Clearly, it heralds good time for traders. Now, traders can enjoy 5 expiry days in a week which will obviously be a boost for options volume to a whole new level. With a short settlement, traders have the opportunity to pick opportunities across different product expiries with the same margin being churned. Different instruments to trade on different days will help traders effectively utilize their margins. This new regime of multiple weekly expiries would be specifically profitable for expiry-day traders who have the tendency to short-sell options on these days to enjoy theta decay. The good news is that such theta decay strategies can be deployed throughout the week by churning the same margin. Also from the market infrastructure perspective, this spreads the risk. While Bank Nifty and Nifty remain the most liquid contracts, this spread could also help to nurture volumes in other contracts. We have to wait and watch.