All In the Money ( ITM ) Option Buy Position not squared off ON EXPIRY DAY result into automatic exercised. Option Buyer has to pay Securities Transaction Tax on Notional value of Option i.e Strike Price multiplied by quantity.
Take Yesterday's i.e 13th July 2017 case of Bank Nifty Put Option Strike Price 23900 Final Settlement Price 23888.65
Bank Nifty was trading above 23900 on majority of last half an hour , which computes closing prices for settlement . Market Participant in fact all option writer in this Strike price were expecting BANKNIFTY close above 23900 so there were no buyer in 23900 Put Option and all option buyer were standing as seller in 5 paise but could not sq off as there were no Buyer.
One can understand Option Buyer's lack of knowledge or not monitoring position actively assuming this is OTM but how Option writer failed to sq off and finally ended up paying 12 points where they had an opportunity to sq off at just 5 paise.
I request All participant to contribute on the following line :
Take Yesterday's i.e 13th July 2017 case of Bank Nifty Put Option Strike Price 23900 Final Settlement Price 23888.65
Bank Nifty was trading above 23900 on majority of last half an hour , which computes closing prices for settlement . Market Participant in fact all option writer in this Strike price were expecting BANKNIFTY close above 23900 so there were no buyer in 23900 Put Option and all option buyer were standing as seller in 5 paise but could not sq off as there were no Buyer.
One can understand Option Buyer's lack of knowledge or not monitoring position actively assuming this is OTM but how Option writer failed to sq off and finally ended up paying 12 points where they had an opportunity to sq off at just 5 paise.
I request All participant to contribute on the following line :
- How to prevent losses due to STT on Notional Value in such cases
- How to prevent Default by Client to Stock Broker due to levy of STT
- Why Option Writer ( smart option player ) missed sq off and finally ended up paying much more
- How client can avoid last minute Buying of Such Option
- How Stock Broker esp Discount Broker like Zerodha , RKSV , TSO , SAS can prevent this ?