As an options contract approaches expiry, time remaining falls and premium can reprice rapidly. A strategy suitable earlier in the series may behave very differently on expiry day.
Time remaining becomes scarce
Near expiry, out-of-the-money premium can erode quickly while at-the-money sensitivity may change sharply around the underlying price. Small delays can therefore have a larger impact than expected.
Fast price does not remove execution risk
Rapid markets can widen spreads and increase slippage. A visible stop on a screen does not guarantee the same execution price.
- Bid-ask spread
- Order type
- Market depth
- Slippage allowance
Reduce assumptions before increasing size
Expiry-day decisions should begin with a strict maximum rupee loss, smaller assumption set and clear no-trade conditions. High potential percentage movement also means high loss sensitivity.