I have few in the money Call options , but the liquidity is so low that i am unable to square off my positions.
Can you please let me know if there is any penalty if i am letting it to expire ?
Also is there any strategy to cut off my loss if i am not able to square them off… One i can think of is i can write a call option or buy a put option or short a future at a price i would have ideally liked to square it off at.
No penalty for ITM options when left to expire. Only STT charges are more.
When you let the options expire you pay higher STT 0.125% but when you square off you pay only 0.017% on premium value.
You should also understand that since the buyer need to pay higher STT the option cannot be sold at higher price while squaring off on expiry day near close time. The option sells little less than its intrinsic value, otherwise buyers wont buy it. So the higher STT is fact being countermanded by lower option sell prices.
There is no strategy I know of which lets you escape from STT trap (if you cannot find any buyer to sell off your option contract). You need to go with the settlement way only.