Lets say I sold put and expires in the money - and I am ready to take delivery.
Can someone explain about govt charges like taxes/ STT
I think I should not worry about STT trap because I am seller correct? @ShubhS9 @Bhuvan
No that STT exempt is applicable when u promptly squared off ur put position
In this case u held ur write PUT and it is ITM on expiry. So it is a simple delivery buying of the lot size of the underlying stock at the agreed strike price… U have to pay STT on the purchase value and STT rates will be same like cash delivery buying
When you are going for physical settlement, there is STT levied at 0.1% on the contract value.
Along with this there will also be brokerage charged at 0.25% on the physically settled value.
You can read more about physical settlement here.
What is going on? is not that considered delivery ? why would you charge 0.25%? you already charged for selling put …I constantly have a feeling it slowly and slowly it sucks @ksk
The brokerage is higher because there is substantial increase in risk and effort when dealing with physical settlement.
What is the risk? you always make sure client has enough margin otherwise your will square off the position. And give more details as to how delivery is physical? how is it different from normal buying of stocks outright?
@ShubhS9 no response …lol I knew that you will not have any response …you can only mislead until certain point …and only certain people …not all the time and not all the people
This is true but there can be scenarios where markets are volatile or there is lack of liquidity, in such case even RMS will not be able to square-off your position.
There can also be scenarios where trader might not have enough funds to fulfill obligation to take delivery (which results in debit balance) or not enough shares to fulfill obligation of delivering shares (which results in Short Delivery).
You will be taking delivery or delivering the shares as a result of holding a derivative position, you aren’t buying or delivering (selling) the shares outright from your trading terminal like you normally do.
Moreover we are charging only two times of span+exposure for option short & Futures. Only 50% of contract value for long options.
So there is a risk involved in all physically settled contracts. CNC Delivery transaction doesn’t involve any risk as you will pay full margin for the transaction. If the contract is physically settled there is substantial effort from the brokers to settle the contract.
So considering risk and effort involved the brokerage will be higher side. You can always purchase that in cash market without paying any brokerage.
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@curiousvi i am just looking from neutral angle. The ITM resulting in delivery is related to a F&O product. So i think that cannot be compared to straight delivery in CNC when it comes to brokerage.
[quote=“Ragavendran_M, post:9, topic:92674”]
lol – I remember when there was 3-5% brokerage on delivery by brokers - broker and his/her employees still had an argument to support their high brokerage and policies.
@ksksat @ShubhS9
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Yes it starts with FNO product and for that they are getting their brokerage but than it automatically (through coding/software) it becomes a delivery position( I am talking about put selling)
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Risk - I agree that risk is not 100% covered but if client fails to maintain double the margin in last week of expiry…system automatically squares off the position - everything is handled by software nowadays - so where is SUBSTANTIAL EFFORT - they are talking about to support their 0.25% brokerage policy?
if something goes wrong and client fails to provide additional margin - how can we think that client will be able to provide that additional 0.25% brokerage ?
We are allowing clients to take physical delivery even if they have 50% of contract value. So it’s not same as CNC delivery where brokerage can be free. Once the contract is expired it may take T+2 to sometimes T+4 days to deliver the shares from exchange which carries substantial price risk as only 50% of contract value has been collected. FYI Most of the brokers won’t allow physical delivery itself and compulsorily close all the positions whereas we allow the clients to take it.
If you close your position before 3.30 PM on expiry day you no need to pay any extra brokerage as it will be cash settled. If you don’t want to pay brokerage you can always purchase the shares in cash market.
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So on the day of expiry if client have only 50% of total contract value and it expires in the money - you will still allow the client to have delivery in his/her demat?
So what is the deadline for remaining 50% of the value and what is the time limit client has to submit the remaining 50%? -
What do you mean by substantial price risk until shares are delivered from exchange …lets say I sold put of 2500 and and market price on expiry is 2400 Rs. …so are you saying that if client is unable to transfer the remaining 50% of the contract value - Zerodha has to pay full 100% and keep the delivery ?
Ideally you should make adequate funds available on expiry day itself, failing which your account will result in debit balance, on which there will be interest charged at 0.05% per day.
Essentially it is the broker who is making up for shortfall of funds on clients side in this situation.
As mentioned above, you will have to make adequate funds available to take delivery of shares, if you don’t your account will result in debit balance and you will have to add required funds, failing which the delivered shares will be liquidated to make good of the debit balance. Interest will be charged at 0.05% per day on the debit balance in the account.
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