Market participants should brace for heightened volatility in the second half of Tuesday’s trading session as both weekly and monthly futures and options (F&O) contracts expire today. Nifty derivative contracts typically expire on the last Tuesday of every month. If the scheduled expiry day is a trading holiday, the expiry is moved to the preceding trading day.
The expiry of derivatives contracts is nothing new, but the closing auction session (CAS) is. CAS, introduced on 3 August this year, has led to unexpected price swings and market uncertainty, prompting the Securities and Exchange Board of India (Sebi) to propose a revamp of the settlement methodology for derivatives contracts.
On the expiry day of the August F&O series, the Nifty witnessed a strong upswing in the final few minutes of the session, driving it almost 1% up from the day’s low and 0.50% up from the previous close.
What is CAS? What SEBI proposed: A quick review
Market regulator SEBI designed a new auction-based mechanism to make the stock price discovery process more transparent.
The CAS is conducted every trading day from 3:15 PM to 3:35 PM, immediately after the regular market closes at 3:15 PM. During this 20-minute window, investors can place market and limit orders to help determine the official closing price of eligible stocks.
The order entry window will close at a random time between 3:28 PM and 3:30 PM, with the exact time determined automatically by the exchange’s system. This random closure is intended to prevent last-minute manipulation of stock prices.
While the cash market’s closing auction ends at 3:35 PM, trading in the equity derivatives segment continues until 3:40 PM.
After the auction, a post-close session is held in the cash market from 3:50 PM to 4:00 PM, during which investors can buy or sell shares only at the final closing price discovered through the Closing Auction Session.
However, the new closing mechanism of derivative contracts triggered sharp volatility in the key indices during the final few minutes of the session.
SEBI proposed a revamp of the settlement methodology. In a consultation paper on 12 September, it was suggested that expiry-day settlement prices for index and stock derivatives could be calculated using trades from the last 30 minutes of the continuous trading session (CTS) and 10 minutes of the closing auction session (CAS), under a blended volume-weighted average price (VWAP) approach.
Why the last 30 minutes could be most important
The final 30 minutes could be more important than usual today as Nifty is facing both weekly and monthly expiry, which can lead to sharp position adjustments, rollover activity and increased volatility towards the close.
Hitesh Tailor, a technical research analyst at Choice Broking, underscored that the CAS factor can further amplify price movements in the closing minutes, making the final closing level important from a technical perspective.
Tailor believes Nifty 22,500 remains the crucial support zone for any short-term recovery attempt.
“If the index sustains above this level, some stability or recovery towards 22,800–23,000 can be seen. However, a decisive break below 22,500 would weaken the setup further and could drag the index towards 22,182–22,100,” said Tailor.
“On the higher side, 23,000 has now emerged as an important resistance zone, as the level had earlier acted as strong support around the June 2026 swing low. The final 30 minutes and the closing levels around these key zones will be important in determining the near-term trend,” Tailor said.
According to Ajit Mishra, SVP – Research, Religare Broking, Tuesday’s session could be a volatile session, especially in the second half, as it also marks the end of September’s derivatives contracts.
“We are eyeing 22,600 to be the immediate cushion after yesterday’s fall, while upside may remain capped to the 23,000 zone,” said Mishra.
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Disclaimer: This article is for educational purposes only and does not constitute investment advice. The views and recommendations expressed are those of individual analysts or broking firms, not Mint. We advise investors to consult with certified experts before making any investment decisions, as market conditions can change rapidly and circumstances may vary.
