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What is the meaning of the term ‘expiry date’?

Expiry date, in financial markets, refers to the specific date when an options contract or a derivative expires or becomes void. It is the final date by which the holder of the contract must exercise their right to buy or sell the underlying asset, or the contract itself becomes worthless.

For options contracts, the expiry date marks the end of the contract’s validity, determining the timeframe within which the contract holder can execute the option. This date holds significant importance as it influences the option’s value and determines the period during which the contract’s terms, including the strike price and the right to buy or sell the underlying asset, remain enforceable.

The concept of expiry dates is not limited to options but applies to various financial instruments, including futures contracts and other derivatives. Futures contracts, for instance, have specific expiry dates dictating the termination of the agreement and the final settlement between the buyer and seller.

Traders and investors pay close attention to expiry dates as they plan their trading strategies around these deadlines. The expiration of contracts often leads to increased trading volatility and activity as market participants adjust their positions or roll over contracts to avoid the risk of expiration-related losses. Understanding the expiry date is crucial for effectively managing investments and derivatives trading strategies.