NSE OFFERS “Do Not Exercise” CHOICE ON CTM OPTIONS
At present, all “In The Money” options contracts are exercised automatically on the expiry date of the contract.
Starting Aug. 31, 2017, the exchanges have issued that a member broker can instruct and send a “Do
Not Exercise” directive so that your Close To Money (CTM) Option
contracts open positions will NOT be exercised automatically on the
expiry date.
At
the benefit of the client, Upstox ( the member broker), shall mark a
“Do Not Exercise” instruction to the exchange for all such CTM contracts
where the applicable STT surpasses (is more than) the receivable
premium on the exercise of such CTM contract.
Eg. If
a client holds a position in say NIFTY 9800 CE , and the NIFTY
settlement price on the day of expiry is 9805.15, the receivable
premium by the client would be 5.15 (9805.15 - 9800) as compared to the
applicable STT on the exercise of the contract which would be 12.25 (
9805.15 * 0.125%). Net Value receivable by the client would be 5.15 -
12.25 = - 7.1
To Note:
- Since the contract would be marked as "Do Not Exercise" the receivable premium on such contracts stands to cease as there would be no exercising of such CTM contracts.
- On the other hand STT will not be applicable and therefore there will be no negative value arising of the same (as explained in the example above).
All other ITM option contracts (not in the ‘CTM’ option series), shall be exercised automatically as per existing practice.
This
is done in order to benefit the client and help save on STT applicable
on a transaction that you didn’t want in the first place!
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