Excercise vs square off

#1
Dear All

I'm new to options trading in fact I've my first option expires today.
I had call with my broker he said exercise and squaring off are the same things
So even if my option is in the money (compared to underlying) but price of option goes to be zero I'm at loss.
Is that correct? I always thought that when you exercise we get difference in strike price and underlying spot market price
as opposed to squaring option gives price someone is willing to pay

please help

Thanks
Vish
 

rkkarnani

Well-Known Member
#2
Not much idea but I do know in case of Exercising the STT is charged at delivery rates which is much higher than the normal STT on derivatives.
 

TracerBullet

Well-Known Member
#4
Dear All

I'm new to options trading in fact I've my first option expires today.
I had call with my broker he said exercise and squaring off are the same things
So even if my option is in the money (compared to underlying) but price of option goes to be zero I'm at loss.
Is that correct? I always thought that when you exercise we get difference in strike price and underlying spot market price
as opposed to squaring option gives price someone is willing to pay

please help

Thanks
Vish
Google - Zerodha : STT Trap - Options Expiry - NSE BSE MCX-SX
It looks like tax is a lot higher and so the price reflect it on last day
 
#5
ok got my query answered. all options (stock and index) are now European style i.e. can not be exercised before expiry.
So to exercise option simply leave the position open.
guys please correct me if this wrong.
 

Mr.G

Well-Known Member
#6
You are. Right, but don't exercise your options as in European options you don't get actual delivery, you get money equivalent of the delivery. And that is charged higher tax, so just sell the option 2-3 days before expiry and avoid exercising it.
 

mastermind007

Well-Known Member
#7
Dear All

I'm new to options trading in fact I've my first option expires today.
I had call with my broker he said exercise and squaring off are the same things
So even if my option is in the money (compared to underlying) but price of option goes to be zero I'm at loss.
Is that correct? I always thought that when you exercise we get difference in strike price and underlying spot market price
as opposed to squaring option gives price someone is willing to pay

please help

Thanks
Vish
lets assume you had call option allowing you to buy at X for which you paid premium p and on the expiry date, scrip closed on C (which was higher than X)

you will be paid C - X (minus all the Congress Scam funds A.K.A. taxes) per scrip, per lot. If total of what you get paid is higher than total premium you paid, you are in profit ...
 

sibu3168

Well-Known Member
#8
Dear All

I'm new to options trading in fact I've my first option expires today.
I had call with my broker he said exercise and squaring off are the same things
So even if my option is in the money (compared to underlying) but price of option goes to be zero I'm at loss.
Is that correct? I always thought that when you exercise we get difference in strike price and underlying spot market price
as opposed to squaring option gives price someone is willing to pay

please help

Thanks
Vish
In fact, exercise and square off are not same thing. In squaring off, you have to pay charges that are only calculated on option premium but in case of exercise, you have to pay charges that are applicable on (strike price + premium). The truth is generally option is considered as a delivery product. So at the time of exercise, it attracts huge STT. So on expiry day, you notice even if the price of underlying is higher its option price trades lower.

Another thing at the time of exercise is. only option buyer pays huge charges where as in case of option writer, it attracts only jobbing charges.
 

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