Lets say, I have shorted a CE/PE option. At the end of the expiry day it is in OTM (So, the price of the option is Rs.0.00). Will the exchange automatically assume that I have bought them at Rs.0.00 and do the settlement or will I be fined for not closing my position ?
read this u will understand STT TRAP http://justtrading.in/day-trader-lost-rs-18-lakhs-in-5-minutes/
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You are correct. Exchange will automatically assume that you have bought them at Rs.0.00 and do the settlement. No fined for not closing the position. This way you also save some brokerage charges for yourself.
On a lighter note, guess you have to read it again.
STT trap may occur when you BUY options first and it becomes ITM at expiry. @option-er is asking about shorting the options first.
ok
i didnt read question properly
Thank you @darshank. You made it pretty clear for me.
But I have come across another similar scenario. Let me know if my understanding is correct here. We will be in STT trap only if we buy first. So, if I sell a CE/PE option and though it becomes ITM at expiry, I will still not fall in STT trap. Right ?
For example, I sell a CE option at Rs.100 and its value at expiry is Rs.50. Assuming I don’t buy it at the end of expiry, the exchange assumes that I have bought the option at Rs.50 and does the settlement (Rs.50 profit). Am I correct ?
Thank you @dolphy_crasta.
Though that was not exactly what I was asking for, I still learned some important things by reading that link. Appreciate your answer.
Hi @option-er
Since you are short options, you would have already paid STT. So when it expires in the money, there is no STT. (STT is only charged on the sell side and you would have already paid when you shorted it).
So if someone shorted and it expires out of the money …still no worry about STT correct? One should let it expire worthless correct?