What happens when an Option expires?

 What happens at expiration depends on whether the option is in-the-money (ITM), at-the-money (ATM), or out-of-the-money (OTM) and on the type of underlying asset. 

 Stock Options (Equity Options):  These are options on individual stocks.  OTM options expire worthless, ITM options expire into 100 shares of underlying stock for every contract owned or written.

 Index Options:  Most major index options are cash-settled.  OTM index options expire worthless.  ITM index options settle into cash and the buyer of the option's account is credited $1.00 for every penny the option is in the money, whereas the seller of the options account is debited the same amount.  

Futures Options:  In the money futures options settle into a futures position that are detailed the specs of the underlying futures contract.  As expiration approaches margins on ITM futures contracts move to resemble the margin required to hold the actual futures contract.