Open ZERO Brokerage FREE Share Trading Account - Buy and Sell Stocks Without Brokerage - Set GTT (Good Till Triggered) Orders on System and ForgetTraditional brokers charge a lot for brokerage; however, this broker does not charge anything for stock buying and selling. Also, you can set GTT (Good Till Triggered) order after buying a stock, so that the system can sell the stock automatically at your target price even if you are not monitoring the market. Only 25k is blocked for option selling with hedge. Also, you get a lifetime free account in Sensibull (virtual trading app & strategy builder) which charges Rs.800/-+GST a month. Learn option hedging strategy if you open an account today. It takes 5 minutes to open an account online. Click here and Open Free Account with Them Today >>
Today 23-February-2017, is India’s Stock Markets Exchange Derivatives – Futures and Options expiry day for derivatives for the month of Feb 17 not other months.
Which means all options and futures contract for this month Feb 17 will expire today at 3.30 pm. Out of The Money (OTM) options will expire worthless and In The Money (ITM) options will have only the intrinsic values left in the premium at around 3.25 pm.
Therefore you must close all options for Feb 17 contracts before 3.25 pm (5 minutes before market closing to avoid leaving it open by mistake), if possible, especially In The Money (ITM) options. Please read carefully to know the reason. In short it is dangerous to leave it not closed.
Old subscribers may remember that I have keep saying in my blog since last two years, do not let your options expire worthless, there can be a penalty by the exchanges.
Securities Transaction Tax (STT) is A Huge Danger to Let Option Exercised and Not Closed Before Expiry Day
Now there is even more and severe danger of letting them expire exercised (not worthless). The Securities Transaction Tax (STT) tax on options that do not expire worthless but get exercised face a huge Securities Transaction Tax (STT) of 0.125% on the Total Value Of the Options.
What is an Exercised Option?
An option is considered exercised if it was bought any day before expiry, is In The Money (ITM) and not sold before the expiry day of the that expiry month options only.
An option is considered worthless if it was sold any day before expiry, is Out of The Money (OTM) and not bought back before the expiry day of the that expiry month option only.
Securities Transaction Tax (STT) is not applied on worthless options which were sold and not bought back and are Out Of The Money (OTM)
Securities Transaction Tax (STT) is applied on exercised options which were bought and not sold before market closing on expiry day and if they are In The Money (ITM)
To avert chances of any penalty or to avert risk of STT (no one knows all the rules of STT), it is better to close all derivatives, options or futures, In The Money (ITM) or Out Of The Money (OTM), before the expiry day.
Though some of my options too expired worthless in Jan 2017 too, but luckily they were all sold not bought and they were Out of The Money (OTM). There was no brokerage and no STT levied on my options since they expired worthless and were sold not bought back.
But even if there was no STT done on sold options that expired worthless, I still recommend close all derivatives before expiry day. Now we just do not know what may happen. If your brokerages are too high you can register with a low cost brokerage firm which costs next to nothing to close options and futures. It is better to pay a small fee rather take the risk of letting options expire in the money or out of the money, exercised or worthless.
Contact me to help you open an account with the lowest and one of the best brokerage form in India.
Please note that only February 17 month options will expire today, not any other months options.
So, this rules applies today to February 17 month options only. Today is options and futures expiry day of February 17 month options and futures contacts only, rest of the remaining months options and futures will not expire today.
Small Note: My Conservative Options and Futures course is designed in such a way that we do not wait till expiry day to avert these kinds of dangers. They are very conservative in nature and have risk management inbuilt due to hedge. This is the reason a lot of traders are doing pretty well trading my strategies since 2014. Contact me to know more about it.
What About Securities Transaction Tax (STT) on Options That Are Closed Before Expiry Day
In the case of options trading and closed when the markets are opened anytime before the expiry day, the Securities Transaction Tax (STT) is 0.05% on the premium. This is ok and it makes sense and is easily affordable.
But here is the problem and a BIG one.
What About Securities Transaction Tax (STT) on Options That Are Not Closed Before Expiry Day?
The Securities Transaction Tax (STT) on exercising an option is 0.125% on the total value of the options bought. Exercising of the option is that you bought an option (it does not matter when you bought – 60 days, 50 days, 40 days, 30 days, 20 days, 10 days or on the expiry day for Intraday day trading), but are not willing to close the trade to save brokerages and taxes, or have forgotten to close it and leave it till expiry day’s markets close – after which you cannot trade them.
This is where the problem lies. When an option is exercised, the Securities Transaction Tax (STT) is paid on the entire value of the option and not just the total profits made.
Example on Securities Transaction Tax (STT) On Options Getting Exercised
For example let’s say Trader “A” forgot to sell his option on expiry day. Nifty closed at 8872.55.
It does not matter what the premium was of the options he bought when Nifty closed.
Suppose Trader “A” made a profit or loss of Rs.1 lakh. Again it does not matter what the profit or loss was made on an exercised option.
Why profit or loss does not matter here you will know soon.
The Securities Transaction Tax (STT) will be Not be levied on Rs.1 lakh profit or loss. It will be levied on total value of the In The Money (ITM) options.
Supposing the above trader bought 1000 lots of Nifty options and forgot to sell it and it got exercised. Nifty on that day closed at 8872.55.
Since Trader “A” allowed the Nifty options to be exercised, he has to pay STT on the full value of the options bought.
Here is the Calculation of STT on Exercised Options Bought but Not Sold Before Expiry Day
One lot of Nifty option currently is 75. He bought 1000 lots. Nifty closed at 8872.55
Total value of the option:
8872.55 * 1000 * 75 = Rs.66,54,41,250.00 (Rs. 66 Crores, 54 Lakhs, 41 Thousand and 250.00)
0.125% of 66,54,41,250.00 = Rs.831,801.56 (Rs. 8 Lakhs 31 Thousand 801.56)
Profit was Rs.1 lakh.
STT needs to be paid = Rs.831,801.56
So the trader is in loss of = Rs.(100000 – 831,801.56) = -731,801.56 (Rs. 7 Lakhs 31 Thousand 801.56)
This in spite of making a profit if Rs.100,000.00 on the options he bought.
Or even after making a profit of Rs.1 lakh, Trader “A” will be in a huge loss of Rs. 7 Lakhs 31 Thousand and 801.56.
Do not let such a situation ever come in your entire life of trading.
A real trader Mumbai-based Chirag Gupta, is currently facing a loss of Rs.18 Lakhs even after making a profit of Rs.6.07 lakh on the options he bought but did not close on the expiry day of January 2017. He bought options for 0.05 but did not close for reasons known to him. I cannot say why he did not close as he has not said it anywhere, so I do not know.
In absolute shock he has started an online petition to stop this STT on exercised options. Here is the petition:
A Note to Mr. Chirag Gupta: If you are reading this let me tell you that I am extremely sad with what happened to you. I am sure my readers must be also be very sad after knowing your story. Please let us know in the comments section why you did not close the options you bought before markets closed on that fateful day? It will help us tremendously to avert such a situation. Sorry Mr. Chirag Gupta, but lets hope for the best.
His article is published in Economictimes as well.
Close all Futures & Options on or before its expiry day to save huge Securities Transaction Tax (STT).
Click to Share this website with your friends on WhatsApp
COPYRIGHT INFRINGEMENT: Any act of copying, reproducing or distributing any content in the site or newsletters, whether wholly or in part, for any purpose without my permission is strictly prohibited and shall be deemed to be copyright infringement.
INCOME DISCLAIMER: Any references in this site of income made by the traders are given to me by them either through Email or WhatsApp as a Thank You message. However, every trade depends on the trader and his level of risk-taking capability, knowledge and experience. Moreover, stock market investments and trading are subject to market risks. Therefore there is no guarantee that everyone will achieve the same or similar results. My aim is to make you a better & disciplined trader with the stock trading and investing education and strategies you get from this website.
DISCLAIMER: I am NOT an Investment Adviser (IA). I am an Authorized Person (AP) of a Stock Broker. I do not give tips or advisory services by SMS, Email, WhatsApp or any other forms of social media. I strictly adhere to the laws of my country. I only offer education for free on finance, risk management & investments in stock markets through the articles on this website. You must consult an authorized Investment Adviser (IA) or do thorough research before investing in any stock or derivative using any strategy given on this website. I am not responsible for any investment decision you take after reading an article on this website. Click here to read the disclaimer in full.
Find 200+ testimonials of my course on these pages too posted year-wise:
What Traders Say About This Course
Testimonials Year 2015
Testimonials Year 2015 Page 2
Testimonials Year 2015 & 2016
Testimonials Year 2016
Testimonials Year 2017
Testimonials Year 2018
Testimonials Year 2019
Testimonials Year 2020
Testimonials Year 2021
Testimonials Year 2022
Testimonials Year 2023
Testimonial of one of my client making 25k per week
Emotional Testimonial by a Young Woman Trader and Her Mother
Difference Between other Courses and Mine
What others charge for online courses
What People Say Just After Doing My Course
Bank Nifty Course Testimonials