Is it true that index option seller should not worry about STT trap …only buyers need to worry about t?
Can u please explain why?
Because option seller has already paid the STT at the time of entering trade and squaring off position through market purchase or through expiry settlement doesn’t attract STT. And since he sold first that means it must be a market trade and therefore STT is calculated only on premium value. Whereas squaring off through expiry settlement attract STT on full contact value - closed spot price plus premium. That’s called STT Trap.
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Even though there is no STT for the seller , they should try to close in the money options.
Price of the options about to expire will already be in discount because of STT.
Like today bank nifty closed at 25052. But 24800 call was trading at around 210/220rs near close instead of’ 250.
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You said squaring off through expiry settlement attract STT on full contract value …I believe you are referring this for buyer correct?
Yes, it is for buyer.
Can you please explain why?