Exercise vs square off

Hello Guru, my question is regarding square off vs exercise.
Let us consider I have bought call option for equity. As I read, if the contract is in ITM, it is advisable to square off before expiry else it will be exercised, otherwise STT will be high.

  1. What is the scenario which I should consider to exercise the option instead of square off (assume I have the fund)?
  2. Is it advisable to square off or exercise when it is deep in the money or just in the money. Not able to visualise which one to choose vs the other one.
  3. If it is OTM on expiry day or before, is it good to square off before or let it go worthless . I mean if I square off then I will pay stt but get some money in form of ltp of the call whereas if it is goes expired then entire premium. So my assumption here is that in this situation it is pure play calculation to check which scenario is better. Please correct me if I am wrong here…

I have been in stock trading for quite sometime, reading about option for quite some time but haven’t got in reality as some questions are not fully clear.

Thanks for your inputs…

It is better to square off and book profit in ITM cases

You can always buy immediately in cash market spot in required quantity flexibly if needed. Not like in exercise that you have to buy entire lot

Same in otm. Square off and get that small amount. Unless you expect a huge wave of price movement in last hour in ur favour which is highly unlikely. Even if price moves at last hour time decay will make the current week option not spike.

in index options exercising or squaring-off doesn’t make much difference as now stt is levied on intrinsic value vs earlier which was levied on contract value…

in stock options… the best idea is to square-off rather than let it go for physical settlement because brokerage and other charges will be hefty, in such cases you are better off squaring-off and buying from cash market…

You can choose to exercise the call option when it is deep ITM and you should have available funds in your account to buy the stocks specified in the contract of the scrip at the strike price.

It’s depends upto u… But it is generally beneficial to square off the open option contract before expiry or else it will get exercised and the buyer should have to buy the stocks in case of call option and sell in case of put options .

Two problems may arise in case of exercising the call option :-

  1. The buyers of the call option may not have the funds to buy the stocks of the scrip.
  2. Short delivery may happen from the side of the seller.

If the option contract is OTM then is good to square off the contract before or it will go worthless because by squaring off you will get the extrinsic value of the contract…so the loss is ( premium paid - extrinsic value)

Thank you @MightyBulls for patiently answers. Gives a lot clarity