How Option Trading Charges Can Make or Break Your Profits!

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How Option Trading Charges Can Make or Break Your Profits! with Examples! In this article, we will explain with examples how much charge is incurred in Option Trading to provide clarity on this commonly pondered question. The query is faced not just by you, but also by thousands of people who are new to Option Trading.

Whether to start Option Trading or not, it is essential to have clarity on the charges involved. When we are unaware of the amounts being charged for each trade, it becomes challenging to accurately assess our profit and loss. We also remain unaware of the total amount being charged, raising the concern of potential overcharging.

In this article, we will explain with examples how much charge is incurred in Option Trading and which charges are involved. Thus, this information is crucial, so stay with us till the end.

To start trading options, you should consider the cost involved: The cost of starting option trading depends on the amount of money you have. Starting with one lot can cost ₹100, while trading with more can lead to losses of up to ₹100,000.

How much money is needed to sell an option: Let's start by saying that selling an option costs more, while buying one costs less. If you're wondering how much money you need to set aside to buy the option, it's a bit tricky to say, as the price for selling the option varies at each strike price.

How Option Trading Charges Can Make or Break Your Profits?

In option trading, the amount you are charged depends on the amount of equity you are purchasing and the price per share. Broker fees, Securities Transaction Tax (STT), Exchange charges, SEBI Turnover Fees, GST, and Stamp Duty are applied based on the quantity and price of the options you trade.

How Option Trading Charges Can Make or Break Your Profits!

Option Trading Charges example

Suppose you buy 600 lots of ICICI Bank options at a price of ₹6000 and sell them for ₹6500. Here are the details of your profit, loss, and charges in this trade.

  • Total value of premium purchased = 600*6000 = 36,00,000
  • Total value of premium sold = 600*6500 = 39,00,000
  • Profit = 39,00,000 – 36,00,000 = 3,00,000

 Profit – Total charges of option trading = Net earnings after deducting charges

300000 -7014.05 = 292985.95

Friends, if you want to understand how a trending charge of Rs 7014.05 was deducted after selling a premium of Rs 36 lakh for Rs 39 lakh at Icici Bank, I will explain the charges included in Rs 7014.05 in detail.

1️⃣ Brokerage Fee

Brokerage Fee:0.0005% BUY/SELL

Friends, the broker charges a fee for executing our trades, known as the brokerage fee. In option trading, this fee is typically 0.0005% of the trade or Rs 20 per trade.

In the example, you bought 600 lots of ICICI Bank in option trading for a premium of Rs 6,000 and made a profit of Rs 20. A brokerage charge of Rs. 20 was deducted. After a few days, you sold your option premium for Rs 6,500, and another brokerage charge of Rs 20 was deducted. Overall, in option trading, Rs 20 is made each time, but Rs 40 is charged in total for buying and selling the premium.

2️⃣ Security Transaction Tax (STT)

STT (Securities Transaction Tax)0.0625% on premium SELL

When you sell premium in option trading, the government imposes a Security Transaction Tax (STT) of 0.0625%. The calculation of the charge deducted from you for the STT on the premium of ₹ 6500 for 600 lots of ICICI Bank is as follows - source

STT = Total Selling Premium * 0.0625%

Friends, to calculate the total selling premium, simply multiply the lot size by the selling premium price, which is 600 * 6500, resulting in Rs 3,90,000. Upon selling this premium, you will only need to pay 0.0625% STT on it.

STT = Total Selling Premium * 0.0625%
Rs 3,90,000 * 0.0625%
3,900/100 * 6.25/100 
₹39 * 6.25 
= ₹2425

Hence, a total of Rs 3,90,000 was invested in option trading. Upon selling the premium, a charge of Rs 2425 will be applied at a rate of 0.0625% for STT. Tax implications have been factored into the calculation.

3️⃣ Exchange Transaction Charge

Exchange transaction chargesNSE: 0.05% (on premium) BSE: 0.0375% (on premium)* BUY/SELL

Friends, in option trading, the stock exchanges like BSE, NSE, and MCX charge transaction fees. These fees apply when you buy and sell options. Specifically, for Options (Equity) trading, NSE charges 0.05% and BSE charges 0.0375%.

In the previous example, the calculation of the charge taken from you for buying 600 lots of ICICI Bank at a premium of ₹ 6000 and selling them for ₹ 6500 is as follows - . (Option Trading Charges for NSE)

Total value of premium purchased = Price per premium * Lot size
 6000 * 600 = ₹36,00,000

If the NSE's exchange charge amounts to 0.05% of the total premium purchased in option trading, the calculation for the charge incurred in option trading is as follows -

NSE option trading charge = total buying premium * 0.05%
= ₹36,00,000 * 0.05%
= ₹36,00,000 * (0.05/100) 
= ₹1800

Friends, when you bought 600 lots of ICICI Bank at a premium of ₹ 6000, an exchange charge of ₹ 1800 was added. This charge applied when you bought and also when you sold it. If you want to know how much charge was deducted when selling 600 lots at a premium of ₹ 6500, the details will be calculated as follows -

Total value of premium sold = Value per selling premium * Lot size
6500*600 = ₹39,00,000

The charge imposed by the NSE exchange on the total premium sold in option trading is as follows:

NSE option selling charge = total selling premium 0.05% = ₹39,00,0000.05%
= ₹39,00,000 * (0.05/100) 
= ₹1950

Hence Rs 36,00,000 in option trading. On purchasing the premium, Rs 1800 will be charged as per NSE exchange charge of 0.05%. When selling it for Rs 39,00,000, Rs 1950 is charged at the rate of 0.005%. Including both these charges, a total of Rs 3750 will be deducted from your profit by NSE.

4️⃣ Stamp duty charged

Stamp Duty0.003% BUY

Friends, the Indian government imposes a charge under the Indian Stamp Act 1899 on option trading. A rate of 0.003% is charged on the premium value of your Buy Order. You can find more information about stamp duty charges in option trading here.

Total value of premium purchased = Price per premium * Lot size
₹6000 * 600 = ₹36,00,000

If the stamp duty charge is 0.003% on the total premium purchased in option trading, then you can be sure that this amount was charged from you in option trading.

Stamp duty charge = Total value of premium purchased * 0.003%  
= ₹36,00,000 * 0.003%  
= ₹36,00,000 * (0.003/100)
= ₹108

Hence, in option trading, when you bought 600 lots of ICICI Bank at a premium of Rs 6000, Rs 108 was deducted from your profit as stamp duty charge.

5️⃣ SEBI Turnover Fees

SEBI turnover charge0.0001% BUY/SELL

Friends, when you participate in option trading, SEBI charges a fee, which is ₹ 10 per crore. In percentage terms, the SEBI Turnover fees rate is 0.0001%. Similar to brokerage charges, SEBI deducts its fee for every buy and sell transaction (source)

If you bought 600 lots of ICICI Bank at a premium of ₹ 6000 and sold them for ₹ 6500, then the charge taken from you for this purchase and sale will be calculated in this way.

  • The total value of our purchased premium is ₹36,00,000
  • The total value of premium sold is ₹39,00,000

SEBI charge on purchasing option premium = Total value of premium purchased * 0.0001%
= ₹36,00,000 * 0.0001%
= ₹36,00,000 * (0.0001/100)
= ₹3.6

Now, SEBI's charge on selling option premium is equal to the total value of premium sold multiplied by 0.0001%.

= ₹39,00,000 * 0.0001%
= ₹39,00,000 * (0.0001/100) 
= ₹3.9

Therefore, when you bought a premium of ₹ 36,00,000 in option trading, a charge of ₹ 3.6 was taken at the rate of 0.0001% SEBI charge, whereas when you sold it for ₹ 39,00,000, then again a charge of ₹ 3.9 was taken at the rate of 0.0001%. If we take both these charges together, in the previous example of option trading, SEBI had taken a total charge of ₹ 7.5 from your profit.

6️⃣ Goods and Services Tax (GST)

GST18%

Friends, there is an 18% GST in the share market. This tax is applied to brokerage fees, SEBI charges, and transaction charges, not on your turnover. To calculate the GST on these charges, add them up and then calculate 18% of that total for the GST amount (source).

GST = (Broker Fees + Exchange Charges + SEBI Turnover Fees)*18%
GST = 18% * (₹40 + ₹3750 + ₹7.5) 
GST = 18% * ₹3797.50
GST = 0.18 * ₹3797.50 
GST = ₹683.55

Final Calculations

Total charge can refer to the overall cost or amount that needs to be paid. In the previous example, when you sold the premium of Rs 36 lakh for Rs 39 lakh and booked a profit of Rs 3 lakh, the complete details of the different charges that were deducted from it are as follows -

Charge TypeAmount (in ₹)
Brokerage Fee40
STT2425
Exchange Transaction Charge3750
GST683.55
Stamp Duty108
SEBI Turnover Fees7.5
Total7014.05

Keep in mind the instance when you received Rs 2,92,985.95 after Rs 7014.05 was deducted as option trading charge from the Rs 3 lakh profit you made from option trading in ICICI Bank.

Friends, you now understand the charges involved in option trading. Whether you are making a profit or a loss, various charges apply to your trading. Being aware of these charges will help you invest your money wisely and aim for increased profits, even after the charges are deducted.

This content is provided for informational purposes only and does not constitute financial or investment advice. Readers are encouraged to conduct their own research and consult with a qualified financial advisor before making any investment decisions. The information provided is based on the specific example given and may not be applicable to all situations. The accuracy, completeness, or reliability of the information in the provided content is not guaranteed. Any investment involves risk, and past performance is not necessarily indicative of future results.

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