The date on which an option expires is known as its expiration date (or expiry date). Suppose you buy a 3-month stock option in the first week of January, your contract will expire on the last Thursday of March, since, as per regulations, futures and options contracts are settled on the last Thursday of the month.

The buyer of the option pays a price called option premium to the writer for the right to buy/sell the underlying asset. This relatively small amount per option is market-determined and depends upon a number of factors, including demand and supply for the option.

Options can be categorized based on the time when they can be exercised. Based on this categorization, there are 2 kinds of options:

1. American style options
2. European style options

American style options can be exercised by the owner, any time on or before the expiration date. The stock options traded on the domestic stock exchanges in India are American style options.

In case of European style options, the owner can exercise his right only on the expiration date and not before that. Index options traded on the domestic stock exchanges in India are European style options.