Did my broker swindle me?

MRC

New Member
#1
Good evening to one and all.

This is my first post and it concerns my first trade in Options.

I have been always interested to enter the derivatives segment,options especially and have been reading a lot of content about it and yesterday after reading a great deal about it,i initiated my first trade in options but somewhere
i feel my broker was totally dishonest in his intentions.

Please do correct me if i am on the wrong side of things and if my broker was indeed right.

Here is what happened,

Yesterday on 24th May i sold(wrote) ten lots of Nifty 9000 PE @ 1.5 very well aware that Nifty would close well above that strike price.

Today,25th May on expiry,it closed around 9509 and the price of my put closed at 0.05 paise.

After reading a good deal about options,i realized...one can let the options expire worthless and in turn i can get to keep the premium since they are OTM but my trader called me @ 1400 hrs and instructed me,infact in a very stern threatning way if i did not close my position,the exchange would penalize me heavily.

If i what i read and interpreted is true,then there is no need for a writer to close his position since the option is OTM and the option buyer won't exercise it and so it would expire with a value of zero.


I want to know if my broker swindled me to gain brokerage/commission by scaring me to get into a trade rather than let the option expire worthless?


I did close my position towards the close and squared off my position @ 0.05 paise.


Was he right that the exchange would punish me financially or did i interpret my readings right?

I feel dejected and don't know whom to ask.Please help me figure out as to what's right and what's wrong.

P.S - I would again reiterate,i sold(wrote) ten lots of Nifty 9000PE May expiry and after my broker forced me,i had to square it off at 0.05 paise.

Someone please help.:(
 
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MewarLion

Active Member
#3
Are you aware about STT being levied @ Rs 12500 on notional value of options ?

It seems that you are not aware about this though very harsh but reality. Your Stock Broker cannot take chance on your gut feeling or your forecast about closing prices.

You should have kept an additional margin equal to ( Strikeprice * quantity * 0.1250 % ) and must have told your Stock Broker that you are aware about STT being charged @ Rs 12500 on notional value and not premium if position becomes in the money . Stock Broker will not go by your judgement of closing price on expiry Day however you can keep position by keeping additional margin. In fact your Stock Broker tried to save you from such a harsh STT provision on option buyer.


https://www.change.org/p/security-transaction-tax-stt-a-trap-for-traders-and-a-systemic-risk-for-capital-markets
 
#4
Are you aware about STT being levied @ Rs 12500 on notional value of options ?

It seems that you are not aware about this though very harsh but reality. Your Stock Broker cannot take chance on your gut feeling or your forecast about closing prices.

You should have kept an additional margin equal to ( Strikeprice * quantity * 0.1250 % ) and must have told your Stock Broker that you are aware about STT being charged @ Rs 12500 on notional value and not premium if position becomes in the money . Stock Broker will not go by your judgement of closing price on expiry Day however you can keep position by keeping additional margin. In fact your Stock Broker tried to save you from such a harsh STT provision on option buyer.


https://www.change.org/p/security-transaction-tax-stt-a-trap-for-traders-and-a-systemic-risk-for-capital-markets
Not really. That is applicable for the option buyer, and only when the option turns out in the money on expiry. Not to the option writer, which is the case here, and he has already paid STT while entering the trade. This case is OTM option, and is selling option.
 

MewarLion

Active Member
#5
My apology. Did not gave attention on sold or wrote. Stand corrected.

Now only reason seems to either Stock Broker wanted to earn brokearge ( may be unlikely from option writer who pay full margin and volume ) or made genuine error like i just made few min before.

Not really. That is applicable for the option buyer, and only when the option turns out in the money on expiry. Not to the option writer, which is the case here, and he has already paid STT while entering the trade. This case is OTM option, and is selling option.
 
#6
Are you aware about STT being levied @ Rs 12500 on notional value of options ?

It seems that you are not aware about this though very harsh but reality. Your Stock Broker cannot take chance on your gut feeling or your forecast about closing prices.

You should have kept an additional margin equal to ( Strikeprice * quantity * 0.1250 % ) and must have told your Stock Broker that you are aware about STT being charged @ Rs 12500 on notional value and not premium if position becomes in the money . Stock Broker will not go by your judgement of closing price on expiry Day however you can keep position by keeping additional margin. In fact your Stock Broker tried to save you from such a harsh STT provision on option buyer.


https://www.change.org/p/security-transaction-tax-stt-a-trap-for-traders-and-a-systemic-risk-for-capital-markets
While I know that the STT is high for ITM options excercised at expiry, I did not realize it is this bad. It is really shocking to read the loss mentioned in the link and defies the basic principle of options.
 
#7
While I know that the STT is high for ITM options excercised at expiry, I did not realize it is this bad. It is really shocking to read the loss mentioned in the link and defies the basic principle of options.
It's a real pain :mad:

STT Trap
 

copypasteaee

Humbled by Markets
#8
Nothing wrong in selling ITM, OTM or ATM options as on buy side no STT is to be paid. In my circle some people run a scanner (calculates last 30 mins of average) and sells the options at what ever premium available (0.05 Rs even) which are going to expire worthless in very huge quantities. So they earn that 5 paise * lot size* number of lots as their profit.
PS: This happens only on expiry day