Rule Changes Regarding Options Expiry


There have been rule changes regarding options. Options can be in the money or out of the money. If options are in the money, one has to pay a huge amount as Securities Transaction Tax (STT). In some cases the STT is more than the profits earned by option trading.




You know, that if you buy options and let them expire in the money, that you pay a ridiculous amount of Securities Transaction Tax. It is 0.1% of the exercised contract price. So a Banknifty 23000 call option, if the Bank Nifty expires at 23001, will pay you Rs. 1 if you have bought it and not sold before expiry. But the STT you pay is Rs. 23001 * 0.1% = Rs. 23! That means you pay more STT than the premium you get back!


Regarding options expiry, the NSE and BSE have set up new rules :


  • For certain strike prices of In The Money options, one can choose whether to exercise or not, at 4:30 pm.Brokers have to inform the exchanges between 4:30 and 5 pm.


  •  Broker needs to be informed that you don’t want to exercise your bought options. As a result you will not receive any premium or pay the STT even if they are in the money options.


  • So at an expiry of 28001, a 28000 call option holder can decide he doesn’t want to exercise his option rights. He/She will get nothing back (not even the Rs. 1). So, he/she won’t pay the STT either, as the option has not been exercised either.


  • If investor says nothing, the default choice would be to exercise. So the investor actually has to say no. That’s a good habit, especially when it comes to losing money. These rule changes will improve investor behaviour.


  • In case the option is above margin, it would be required to pay the STT. The rule changes does not mean that STT can be escaped.


  • Trading in some in the money options completely stops in the last 15 minutes. This option was not available for the investors. Now it has been made available. Investors can choose not to exercise the option


The rule changes will be met with some doubts. Investors are requested to contact their brokers to get more clarity on the rule changes . Once the doubts are cleared, just go ahead and start saving money on that STT. The rule changes in option expiry will definitely help investors in making more money.


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