Need Help

Hi Friends

On 31st of Dec 09(December Expiry) I bought 50 lots of Call options @ 1.45 and 50 lots of Put Options @ 0.45 and I let the exchange to sq up my position. As I know if exchange sq up my positon I didn't have to pay any brokerage.

In the evening I got a Digital contract in my email which shows that call options has been excersied @ 1.05 paisa. I was shocked that A STT of Rs. 16253 has been charged. I was not aware of STT charges on Expiry and I know that STT charges are on selling side. I didn't sell my options on expiry then why will I pay STT of such a huge amount of Rs. 16253/- and moreover a brokerage has been charge on call options including tax and other charges.

I request guys to help me what should I do now. I am not in position to pay this much amount.

Regards

Vinod Gupta

http://www.traderji.com/investors-grieviences/36945-huge-stt-expiry.html

Your query has been answered here.You did not read the fine print it seems. Tough luck buddy.

can any1 answer this?

Even if you don't sell the option, forced settlement by exchange is taken as if it is sold by you and brokers treat it as if it is regular sell transaction.
Hence u pay the brokerage (might have been minimum brokerage per contract cause % rate of brokerage charged on option premium will be too low), stt and other tax.

Plz read and understand your cost structure before executing fancy strategies.
As a business person, u need to understand your costs before they really hit you and decide if the profit potential is good enough to cover the cost..

Happy Trading

Thankz AW10 but i am still confused. STT which is charged on the sell side and in case of options , STT is applied on the premium amount so it is just a few paise.

his call options has been exercised at 1.05 , so a loss of 40 paise per lot.

so overall loss = Rs. 1000 only for 50 lots.

As in call options , maximum one can loss is the premium amount.
i think that vinod did som mistake in writing that post & it must be the brokerage etc charged not just STT alone.

he shld read his contract notes carefully.



And one thing more is that he also bought put options so , he wld be in profit in his put options.

No mistake there mate . STT is charges @ 0.125 % on exercised options to the purchaser.

AT 50 lots assuming nifty that would be 50x 50x strike x 0.125%

Refer

Securities Transaction Tax

STT Computation
As per the Finance Act 2004, and modified by Finance Act 2008 (18 of 2008) STT on the transactions executed on the Exchange shall be as under:

Sr.No. Taxable securities transaction New rate from
01.06.2008 Payable by
A B C D
a Sale of an option in securities 0.017 per cent Seller
a Sale of an option in securities 0.017 per cent Seller
b Sale of an option in securities, where option is exercised 0.125 per cent Purchaser
c Sale of a futures in securities 0.017 per cent Seller

1. Value of taxable securities transaction relating to an “option in securities” shall be the option premium, in case of sale of an option in securities.


2. Value of taxable securities transaction relating to an “option in securities” shall be the settlement price, in case of sale of an option in securities, where option is exercised.

The following procedure is adopted by the Exchange in respect of the calculation and collection of STT:

1. STT is applicable on all sell transactions for both futures and option contracts.
2. For the purpose of STT, each futures trade is valued at the actual traded price and option trade is valued at premium. On this value, the STT rate as prescribed is applied to determine the STT liability. In case of voluntary or final exercise of an option contract STT is levied on settlement price on the day of exercise if the option contract is in the money.
3. STT payable by the clearing member is the sum total of STT payable by all trading members clearing under him. The trading member’s liability is the aggregate STT liability of clients trading through him.

one more questn i hv - suppose i write/sell 1 lot of nifty CE 5000 @ 10 Rs.

i will wait till expiry and let nifty expires at 4950 , I will earn whole premium which is Rs. 10 per lot , total = 10x50 = 500 Rs.

what will be the STT in this case?

In this case .017%

1. Value of taxable securities transaction relating to an “option in securities” shall be the option premium, in case of sale of an option in securities.

Sameer in this case, when nifty is settled at 4950, your 5000 call is worthless.
It is worth ZERO value. So it will expire worthless and no settlement is need on this.
You won't be paying an STT, brokerage, etc for this.

In theory, OTM options are not excercised on expiry day.. but only ITM options are excercised. Now u might be able to visualise the big push/pull takes place between bulls and bears on expiry date to make the option strike OTM/ITM on last day.

So you keep whole 10 Rs with you (ofcourse deduct the brokerage, stt etc that u paid on the day when you opened the trade i.e the opening leg charges)

Capricorn, Are u sure about your reply to Sameer's questions. I checked by Dec expiry date's contract statement and posting my reply here.

Happy Trading

You pay STT when u sell an option. That's what I 've said. May be u misunderstood.