NO MORE STT trap on exercised In the money options

[nithin]

Traders,

Latest update 21st Aug 2019 - Starting Sep 1st, STT on exercised options would be on the intrinsic value , so truly no more STT trap.

Starting Sep 1st, finally no more STT trap on exercised options

So finally, after years of voicing this issue on every possible forum, there is no more STT trap on exercised options (announced this budget). Here is the circular from NSE [image] STT on exercised contracts from Sep 1st, 2019 will be charged at the rate of 0.125% of intrinsic value (how much in-the-money the option is) and not on the total contract value like earlier. Intrinsic value for OTM (out of the money) options is always zero, so there’s no STT. So if you hold 1 lot of 11000 calls …

The discussion on the below thread becomes redundant after this update.

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]

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]

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]

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

[nithin]

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 ?

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]

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]

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

[nithin]

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.

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]

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

[rahianiket1]

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

[Sandeep_Konda]

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

[nithin]

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

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

[Nandha207]

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 ?

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

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

[nithin]

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

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

[SB7]

[kars]

So … more money to HFT on expiry day?

[nithin]

So … more money to HFT on expiry day?

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

[kars]

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]

Who will be benefited by this move…

[haribabu]

Option Buyers. They should pay higher STT if exercised.