Hello guys, i like to know if we still have STT trap on ITM/OTM option contracts which not squared off at the end of expiry.

One bit that got fixed was that, now you canâ€™t really lose more money than the option premium you have paid. Earlier you could lose much more than what you have bought the premiums for. Check this.

But that said, STT on exercised options is still 0.125% of contract value. So if you let an option expire and it is in the money, you will end up paying much much higher STT.

@nithin Nithin here is where i have a doubt and no one answer clearly. Please help to clarify

Will very deep ITM exercise profitable than square off?

Say i have a very deep ITM call option exercised in nifty. say call option buy 1 lot at strike price 10300 now nifty is in 10700 on expiry so 400 x 75 â€“ 30,000 profit

In this case even after STT i will be in profit right?

STT = 0.125% of 10700x75 which is Rs 1003.

So even after STT i get 30000-1003 = 28997

So i am asking if square off option will yield this much profit?

Head is whirling. Someone pls clarify

Yes on expiry you will get Rs 30000 back for your call options. But I am guessing you would have paid some money to buy it, so the entire Rs 30,000 wonâ€™t be profit. It will be Rs 30k - what u paid.

Yes after STT you will get back 28997.

Rs 1003 will be approximately around 13.7 points. So what this means is that if on the exchange you are able to sell this option at 387.3(400-13.7) or more at around the expiry time, it is better to sell on the exchange. So assume it is trading at around 395, if you sell it on the exchange, you will save around 8 points or Rs 600 by selling on the exchange and not having to pay that 0.125% STT.

Hope this helps.

@nithin sorry let me bring premium paid which is say 3000

All other factors are same.

So now exercise profit is 30000 minus 1003 minus 3000 premium so profit is 25997

Now coming to square off. So here only way i get profit is how much high the current premium is. So from simple 3000 original premium how much current premium will shoot? Will current premium shoot to match 25997 ?

Also near expiry what if i cannot find someone to square off? If options are simply always to be squared off then why the concept of exercising?

Suggest you to go through the options module here, best not to trade when you donâ€™t have the basic concepts right yet.

If Rs 3000 is what you have paid, that means you would have bought the calls at Rs 40 (3000/75) . If market is at 10700, ideally 10300 calls should be atleast at Rs 400 (theoretical price) on the exchange.

But markets donâ€™t follow theoretical price, so the price could be higher or lesser than Rs 400. So as long as it is above 388 (as explained above), it makes sense to just sell it on the exchange. If it is lesser than that, you can let it exercise and you get back at 400-STT cost or at 388.

If there is no liquidity or no one to sell to, you have no option but to let it expire and get exercised.

@nithin thanks . I went thru those. Ur current answer is very clear

Two bullet points from u

theoretical price of premium and actual premium cannot vary drastically

If liquidity is issue no other go than to exercise.

Here i need to know exact spot borderline where i cross and come to profit zone . anything below that use do not exercise. Anything above that is safe to exercise. Again all this only if i could not square off.

Hello @nithin

I buy â€śBELâ€ť @151 , 40 Quantity

(and after 1 day ) (This is a delivery trade)

I sell â€śBELâ€ť @164.95 , 40 Quantity.

According to â€śSTTâ€ť charges mention on website which is 0.1% on buy and sell side

My â€śSTTâ€ť should be 13 rupees

â€śBut as it is showing 93 rupees can you explain me why so ?â€ť