If an option contract is not squared off on the expiry date, the consequences depend on whether the option is in-the-money (ITM) or out-of-the-money (OTM).
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ITM Options: If the option is ITM, it will be settled at its intrinsic value, which is the difference between the strike price of the option and the current market price of the underlying asset. If a trader has a long position in an ITM option, the exchange will levy Securities Transaction Tax (STT) at 0.125% on the intrinsic value. However, if a trader has a short position in an ITM option, STT is already paid when the option is sold, so there will be no STT impact on expiry.
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OTM Options: If the option is OTM, it will expire worthlessly, and the entire premium paid will be lost. Brokerage will only be charged on one side, which is when the options are purchased, and not when they expire worthless on the expiry day.
It is important to note that if the options strike price has not been reached by its expiration date, the brokerage will automatically close the deal and remove the option from the traders list.
In summary, if a trader does not square off their option contract position on the expiry date, the consequences will depend on whether the option is ITM or OTM. If the option is ITM, it will be settled at its intrinsic value, and if it is OTM, it will expire worthlessly, and the entire premium paid will be lost.
