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Do Not Exercise? What it is? Stock Options

The new 'Do Not Exercise' facility being removed by NSE can be catastrophic for traders with small capital who look to buy options.

I see multiple problems here.

1. Previously, if on expiry day, any stock option went ITM, broker RMS had the option to mark it DNE and not exercise it. Now this facility is removed. If a stock option gets ITM, if you haven't squared it off, it will get exercised regardless.

2. So you buy Reliance 2100 CE at Rs. 10 and it goes to 2140 on expiry day and you don't square it off, it will be settled at Rs. 40 and also hit the delivery. If you do not have the margin, then 1% penalty + GST of total value will be applied.

3. Now way around is that you can square off the option. But usually near the last moments, liquidity dries for options. In that case, traders will be hit both sides. Incurring risk of loss as well as penalty of failure to exercise.

4. Same is the risk to seller. If he does not have the stock, it will be shortfall which again has a penalty. Shit move to be honest.

5. I know a case where an option of JINDALSTEL before expiry was trading at 0.05 paise and became ITM by 10 paise due to sudden spurt and person had to buy 10 lot of JINDALSTEL. Consider if it was retail client.

6. Whole move will discourage the stock option trading and push retail traders into #NIFTY and #BANKNIFTY trading which is already brutal.

Kudos (pun intended) to think tanks and so-called protectors of retailers.

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