InvestorQ : What are the key benefits of options shifting their STT calculation model for traders and investors?
Priyanka N made post

What are the key benefits of options shifting their STT calculation model for traders and investors?

Answer
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NISHA Nayak answered.
1 year ago


Cost reduction is an obvious advantage as the options trader will now be charged only on the profits and not on the notional value of the option. This will improve liquidity in the ITM options. One of the reasons the ITM options are not traded very aggressively around the expiry is that they tend to become illiquid with sharp spreads. This makes trading in these options risky and hence most options traders tend to keep away from these contracts. With STT coming down sharply, it could encourage traders to take risk and trade ITM options close to expiry.

Secondly, this fall in option coasts will also be useful for hedgers looking to protect their downside risk. Currently, hedgers face a unique problem in that they have to close hedges rather than leaving them to expiry. Ideally, hedges are best left to expiry but the huge discounts around expiry force early closure. ITM options around expiry were becoming a buyer’s market and the new STT rates will give a level playing field for traders and hedgers.