You must remember that STT (Securities Transaction Tax) can break your profitable option trades into Loss :-
If you squareoff your buy or put option before expiry, the STT is charged only on premium (0.05% of the premium value)
But if you carried forward your trade in option in profit (in the money) then STT will be charged on the stock's or nifty's market value (0.125% of market value instead of premium)
For Example:
You bought nifty's 9,000 call at Rs 1 (10 lots), you didn't squareoff (or traded after broker's auto squareoff timing in last 15 mins] and it went to Rs 3, which means in profit.
Then your profit will be 10*75*(3–1) = Rs 1500
STT will be 0.125% of transaction value 10*75*9000 = Rs 8437.5
While if didn′t take it forward then STT will be 0.05
So, it was all about the taxes. Brokers usually auto squareoff the in-money option trades to avoid situations like this to make sure that retail traders do not get caught in an unwanted situation. However, you must not rely on auto square off by brokerage houses as it can also fail.
Conclusion:
Squareoff your in-the-money options trades by yourself always, even before auto-squareoff.
