NO MORE STT trap on exercised In the money options

**nithin** · August 22, 2017, 12:40pm

Traders,

An amazing news for all option traders out there. Finally, exchanges have found a fix for the STT anomaly on exercised options. Here is link to the BSE circular with the announcement, and this for the NSE circular.

So on the expiry day, there will be an option to not exercise certain strikes of options (those which are expiring just ITM and where STT is more than the intrinsic value of the option).

For all those who want to learn more on how STT on exercised options were a trap, click here. Looks like this petition which all of us supported helped.

Congrats everyone, I am feeling ecstatic.

**harshendrasingh** · August 21, 2017, 1:30pm

If a member opts not to exercise a long position in a CTM contract, such position shall expire unexercised and lapse.
What will happen then to our open positions ? It will be settled at LTP ?

**itsgrv** · August 21, 2017, 1:38pm

That means now if underlying is at 99.7 and strike is 100, and i have bought 100 PE than it will be settled at .3 without any STT applied?

**harshendrasingh** · August 21, 2017, 1:42pm

Looks like it (If you choose not to exercise it)

**nithin** · August 21, 2017, 1:52pm

It will lapse. So for example if you have 10000 calls of Nifty and Nifty expires at 10001, you can decide to not exercise since there would be a 11 points STT to it. So assume you had 10 lots of this 10000 calls, earlier you would have had to pay 10 points (11 as STT -1 as intrinsic) or almost Rs 7500 as STT. Now you can just decide to not exercise and avoid paying this additional STT

**harshendrasingh** · August 21, 2017, 1:53pm

Ok so in the example you mentioned I won’t profit because the contract has lapsed. The only benefit we have under this innovative mechanism is that we can choose when to exercise and when not to based on the STT breakeven levels.

**BoyPlunger** · August 21, 2017, 1:57pm

Super!! Saw on your facebook… meeting with Modiji and Arun Jaitley!

**nithin** · August 21, 2017, 1:57pm

Yep, if you look at the petition, the client had lost Rs 24lks by investing Rs 11k only. This can’t happen from now.

**haridmt** · August 21, 2017, 3:32pm

Great news for options traders. Thank you for your efforts @nithin. Hope NSE will follow suit quickly.

**rahianiket1** · August 21, 2017, 3:32pm

Great news. Is this the effect of recent meet with modijii

**Sandeep_Konda** · August 21, 2017, 5:12pm

But options are no traded on BSE. How does it matter?

**nithin** · August 21, 2017, 5:12pm

NSE circular is also going to be out in the next couple of days.

**Nandha207** · August 22, 2017, 12:03am

In this case that 1re premium will goes to whose pockets

**nithin** · August 22, 2017, 3:16am

Option writer, as he would have already received the full premium when he had shorted.

**SB7** · August 22, 2017, 4:21pm

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**kars** · August 23, 2017, 5:08am

So … more money to HFT on expiry day?

**nithin** · August 23, 2017, 7:34am

When options were getting exercised in the money, exponentially more STT was going to the government. No HFT firms were benefiting from these.

**kars** · August 23, 2017, 9:31am

I meant … going forward.

For those writing options their profit point is now widened. They can pocket premium on more contracts.

When writing Nifty 9800 calls, the strike is practically about 9812.5. vice versa for puts. So there is about 25 points range for Nifty which is for practical reasons equal to 9800 strike. So when one writes both puts and calls, the underlying need not close exactly at the strike for most profit. It can close anywhere in the range.

The payoff diagram of short straddle will not have the sharp top edge. It will be a range created by STT break even. Little more like short gut or short strangle,

Am I missing something?

**DA6704** · August 23, 2017, 3:02pm

Who will be benefited by this move…

**haribabu** · August 24, 2017, 1:26am

Option Buyers. They should pay higher STT if exercised.