FUNDA OF STT ON OPTIONS TRADING

##WHY STT IS HIGHER ON EXPIRY,WHILE DEALING IN OPTIONS!!

Why should I  pay such higher STT even after getting good profits ?? 

Hi Readers :Hope u r much aware now about options Trading,but after getting news on high STT on option many of u are afraid to trade/invest in options,Dont worry just be active while dealing in options...

Let's understand the mechanism of STT on Options:

Suppose on 13th July u have 10,100 Nifty CE:9 call and u holding it till 27th July i.e till Expiry(Last Thursday of Month) 
& on that Expiry date Spot Nifty(Current Rate of Nifty) reached 10,200 &
getting Markets on new high.

In this situation your CE of 9 will increase and reaches (say) to 27Rs.
Bingo u r in 200% profit!!

i.e (27-9)= 18*75= 666Rs. ...

but as u r in ITM(refer previous post for ITM/OTM meaning) and on Expiry here,

u will be charged STT on ur contract value instead of CE prevailing at time of Selling(If u will not square off this ITM position before closing of market i.e. 3:30 P.M) 
...What What What...Come Again!!!

Relax,lets see CALCULATIONS for further Clarity:

Scenario:1:In case of OTM:(Normal Case)

Option Exercised on time:
 STT will be on CE on Sell Side only i.e

=[CE/PE*Lot size*STT Rate]=[ 27*75*.05% ]= 1Rs. Only (Quite low)

Now come to blunder Scenario
Scenario:2:
i.e In CASE of ITM:

On Expiry day,

 STT (will be on Contract Value) =[(Strike+CE/PE) *Lot size*STT Rate]

= [(10,200+27) * 75*.05% ]= 382.83Rs. (OMG) half of my profit ,m gonna pay in STT...

I know this situation is bullshit,but we can't do anything as its a Government Regulation...

Q:Then what to do to avoid such situation??
Ans:Beware & little Active while dealing in options & keep following Points in mind:

#On expiry Don't get in trap of Cheap Options having very low CE/PE say in paisa's 

(trading below than its theoretical value).As it will lead to Higher STT on Expiry

#If you have bought options and they are Expiring ITM , then Sell It Rather than let them expire on their own.(i.e Square of before 3:30 PM on expiry day)

#If the options are expiring in loss i.e (with 0 value), don’t sell it to just to save penny of STT as there is NO STT when ur Options i.e CE/PE becomes ZERO in value and u r in loss of 100%.

Hope it's clear now how STT on Options Works  !!

Will come up with New Discussions Soon !!

Till den

#Stay_Raw

#Think_Hatke