NO MORE STT trap on exercised In the money options

#24

Educate yourself by reading the links already shared.

#25

First time in my life I supported a petition, never thought that it will be so effective :slight_smile: happy for option traders :slight_smile:

#26

So if not excercised, then how to cash out?

#27

I also supported the petition (thanks to zerodha’s persistent reminders on email and sms). I am glad the big trap is addressed now. But I feel the solution is bit ugly.

The tax on notional value on excercise is logical. The meaning of excercise is that the underlying exchanges hands. Thats why the tax is on whole amount.

But the exchanges have already decided to cash settle the contracts and following it for a long time. IIRC index derivatives since the beginning… individual stocks… since last few years.

Why this cash settlement and also automatic exercise?

The exchanges should have put an automatic square-off facility (like closing session). Also an option to explicitly excercise if people really want to change underlying ownership.

This would have been in line with the sprit & philosophy of the contracts and also with the cash settlement practice.

The new ‘facility’ makes some (or all?) option selling strategies more attractive. It also avoids paying tax to govt. The net effect is very clear… this new practice looks crooked. exchanges are opening a hole where big money can profit more on the expense of govt. ( check my other comments in this thread).

As a rule of thumb, the more complex a rule or procedure is … the more stupid or more crooked the facilitators are. One annoying thing is… they can point to various rules & laws and justify the decisions. :rage:

4 Likes
#28

simple solution is change the STT for exercising options from 0.125% to 0.05% :frowning:

4 Likes
#29

if you had to ask… then it is not you. :confused:

1 Like
#30

I had 2 lots of option stock which expired INM today. I don’t want to exercise my option as the INM value would be negligible compared to the STT I have to pay- if exercised. What needs to be done from my side ?

#31

Nakrj, Ideally broker can give request from their end to not exercise the options, only in case exchange provided the files to the broker, since today is the beginning, exchange also facing issue to execute “DO NOT EXERCISE” option. I Just had a word with my broker but they confirmed still they han’t received any file from exchange to give request not to exercise, I have been following with my broker so that I can save myself from paying higher stt for banknifty 24300 ce.

1 Like
#32

Sir, how will we be able to tell zerodha if we want to exercise our ITM option or not, to save on STT…

#33

We will do this automatically if STT value is more than option intrinsic value. We will do the needful.

8 Likes
#34

How are the future contracts exercised at the moment (automatic or manual what are the taxes and charges, etc)?
Since options are also cash settled just like futures why this treating them as delivery but not for Futures?

#35

There is no concept of exercising a futures contract. Exercising is converting your derivative position to the underlying. Only option buyers can exercise. Even though they are cash settled, when an option buyer exercises, he has to pay STT as per delivery.

No such issues on futures. So STT and all remain the same.

2 Likes
#36

https://nseindia.com/products/content/derivatives/equities/sec_tranc_tax.htm

#37

I want to create excel for stt calculation

Can someone give idea how it is calculated.

#38

Check out the STT rates here. Quite a simple calculation. Just make sure to round off to the nearest rupee.

#39

What if i buy 10000 ce at .05 20000 qty (investment is 1000)

What is turnover on which stt will be calculated if it becomes ITM and i let it expire. Consider nifty became 10020

What will be breakeven for this trade

#40

Check this post.

#41

This link shows earlier method of calculation I am asking according to new rule.

#42

New rule is that options in which the STT value is more than the intrinsic value, broker can lapse them. So they expire worthless. So you will never be able to lose more than the value of the premium you have paid.

#43

So @nithin, as per above ZERODHA will automatically lapse such trades and no action would be required from the trader. Right?