There are two broad categories of options in the Indian markets and each follows different rules if you haven’t squared off your positions on expiry day. Let’s see what will happen in both types of options 

Stock Options:

• In-the-Money (ITM): These get physically settled, meaning you actually receive/deliver the underlying asset (shares). 
• Out-of-the-Money (OTM): These expire worthless and you lose the premium paid.

Index Options: Index options don’t involve physical delivery, only cash adjustments based on the contract value.

For Bought Options:

• If they are ITM at expiry: You pay STT on the “intrinsic value” (how much ITM), not the entire contract value (0.125% rate). Brokerage applies on both buying and settlement.
• If they are OTM at expiry: You lose the premium paid. Brokerage only applies when buying.

Shorted/Sold Options: STT charged only when initiating the short position. No STT at expiry.

• If options expire ITM: You buy the underlying asset at a loss (difference between strike price and market price).
• If options expire OTM: You keep the premium received as profit.