NO MORE STT trap on exercised In the money options

[VenuMadhav]

@sumitrekhi

Trying to understand this STT trap issue with an example. Let’s say Ashok Leyland share price is 165 as on day of expiry. What happens if I have call option with 155 strike price. Do I need to square off my position or can I let it get exercised? Which would be more profitable? Wht would be STT implications in both cases?

I’m breaking up your question into 2 scenarios; implications of exercising and implications of squaring off:

If you square off

Assume you sell the option at Rs.9, your realised credit is 9(x)7000 = 63,000 (Lot size of Ashok Leyland = 7000)

STT you pay on the square off trade = 9(x)7000(x)0.05% = Rs.32

If you exercise

If you hold a 155 Strike call and the settlement price is 165, then your option expires in the money and on settlement, you’ll receive a credit of Rs.70,000 [(165-155)x7000].

The STT you would pay would be 165(x)7000(x)0.125% = 1444.

[sumitrekhi]

Thanks Venu

[Vasudevan_S]

PLEASE HELP ME.

“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).”

Where do I specify it. Yesterday I bought BankNifty 31500PE at Rs 26 yesterday and it closed at 31472. I let it expire and am really worried about paying 2300 odd as taxes

[Vasudevan_S]

Please help - How do I specifty “NOT TO EXERCISE” and avoid this STT trap

[siva]

@Vasudevan_S

Please help - How do I specifty “NOT TO EXERCISE” and avoid this STT trap

We will take care, client need not worry about this, if STT is higher than premium then we don’t exercise it.

[Vasudevan_S]

Thank you. Great

[aravindvlad]

Has the proposal to charge STT based on price difference instead of entire contract value has been implemented?

Source: https://www.moneycontrol.com/news/business/markets/budget-2019-stt-securities-transaction-tax-4154981.html

[manu_goel]

Not yet. Supposed to be implemented from 1st september.

[Shivam_Gupta]

@siva

if STT is higher than premium then we don’t exercise it.

Sorry for confusion. What you won’t exercise? You will squareoff the position before the expiry or let it expire as ATM?

[siva]

@Shivam_Gupta

Sorry for confusion. What you won’t exercise? You will squareoff the position before the expiry or let it expire as ATM?

We don’t give it to exercise, let it expire worthless.

[Shivam_Gupta]

But how ITM would be worthless? It will expire with some intrinsic value.
Isn’t it?

[siva]

@Shivam_Gupta

But how ITM would be worthless? It will expire with some intrinsic value.
Isn’t it?

Theoretically yes, but exchange started giving broker option to do so only in case if premium won’t cover for STT.

[Shivam_Gupta]

Thanks @siva

[Mahadish]

So it’s advisable to exercise deep itm rather than squaring off the position… Since profit would b higher when exercised even by paying higher stt?
Right?

[Joe_Chris]

Please can you explain this in simple words

[kars]

Wait for 2 more weeks and the new STT rules for options will be in place. (from Sep 1 onwards … dont know when sebi and exchanges will sent out notices).

Check this:

Budget update for option traders, finally no STT trap on options

Finally, after years of pushing for it, no more STT trap on options which are exercised. [image] So, if your ITM option strike of say 11800 gets exercised on expiry with the spot at 11900, at present you would have to pay STT of 11900x75x0.00125 -= Rs. 1,115. But now it will be (11900-11800)x75x0.00125 = Rs 9.375 STT Download Budget speech.

[Muniz.Reza]

is it true?

[nithin]

@kars

Wait for 2 more weeks and the new STT rules for options will be in place. (from Sep 1 onwards … dont know when sebi and exchanges will sent out notices).

Update

From Sep 1st STT on exercised options is on the intrinsic value and not contract value

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 http://www.nseindia.com/content/circulars/FATAX41919.pdf [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,…

[nithin]

@Mahadish

So it’s advisable to exercise deep itm rather than squaring off the position… Since profit would b higher when exercised even by paying higher stt?
Right?

After Sep 1st, if deep ITM is illiquid on the exchange, yeah it is best to exercise as the STT increase would be incrementally small

[OcaewenGF]

ARe this somewhat related about binary options or something like that if you can ? I do not really see it how it will going, cause they are probably banned already anyway no matter how hard you will try with promoting them. See my point ? I do not.