What happens if I don't sell my options (derivatives) before their expiry?

 

There are two main scenarios depending on whether your option is "in-the-money" (ITM) or "out-of-the-money" (OTM) at expiry:

• In-the-Money (ITM): Exercising the option would be profitable if your option contract is ITM at expiry. In this case, your broker will typically automatically exercise the option for you. This means that for a call option, you will buy the underlying asset at the strike price.You will sell the underlying asset at the strike price for a put option.
• Out-of-the-Money (OTM): If your option contract is OTM at expiry, exercising the option wouldn't be profitable because the strike price is less favourable than the current market price for calls or higher than the current market price for puts. In this case, the option contract simply expires worthless. You lose the entire premium you paid for the option.

Here are some additional points to consider:

• You can always choose to close your options position before expiry by selling the option contract. This way, you can lock in any profits or limit your losses.
• It's important to know your broker's specific policies regarding options expiry. Some brokers may allow you to choose whether or not you want your ITM options to be exercised automatically.

Understanding these consequences is crucial before letting your options contracts expire.