Nifty Options-What happens on Expiration day?

Many traders will indulge in Option trading especially on Expiry Day to make some quick buck as sometimes Rs 1 Options can jump to Rs 20-30 in matter of time.
During my trading Seminar , general question which most of participants have is

Why do options trade at lesser than theoretical value on the expiry day ?

I have seen trader taking position in Options that trades less them their theoretical value, thinking price will correct End of day and they will make profits but in reality end up making losses Many traders every expiry do not  sell their ITM options and letting it expire(especially which are very close to strike price) or else take trades/strategies assuming that discounted price of option will correct before the end of the expiry day.
Let me explain them with few elaborative examples:
1. Nifty Futures  is trading at 7750 and today is the day of expiry. At around

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