Options exercise charges at Zerodha

Overview

Options exercise charges are the statutory levies and broker costs that apply when an in-the-money option position is settled at expiry on Zerodha rather than squared off in the market beforehand. The defining cost is securities transaction tax (STT) at 0.15 per cent of the intrinsic, or settlement, value of the exercised quantity, charged on the exercised contracts as recorded on the contract note (Zerodha charges page, as of 19 June 2026). This is a different and usually larger bill than the 0.15 per cent STT on premium that a trader pays when selling the same option to close.

The asymmetry catches traders who let a deep in-the-money option expire. Premium STT is tiny because premium is small relative to contract value. Intrinsic-value STT is large because intrinsic value can run to many times the premium. A trader who holds a 500-rupee call to expiry on a stock that finishes Rs 80 in the money pays STT on roughly Rs 80 per share of intrinsic value, not on the 5-rupee premium remaining. For stock options the same event also triggers physical settlement: the position becomes a delivery obligation in the underlying shares, bringing in margins, a possible DP charge of Rs 15.34 per scrip on the subsequent sale, and brokerage on that sale. Index options escape physical settlement because index derivatives are cash settled.

This article sets out what happens at expiry for in-the-money options on Zerodha, the exercised-option STT rate and why it bites, the physical-settlement delivery obligation and its margins for stock futures and options, the brokerage position on exercise, and a worked cost example. It sits alongside STT and CTT on Zerodha trades , the broader exchange transaction charges note, and the operational guide on how to avoid physical settlement of options .

What happens at expiry to an in-the-money option

An option is in the money (ITM) when exercising it produces a positive payoff: a call whose strike sits below the spot price, a put whose strike sits above it. At expiry an ITM option does not simply lapse. It is exercised against the exchange final settlement value, and the settlement route depends on whether the underlying is an index or a single stock.

Index options: cash settlement

All index options and index futures in India are cash settled. On the expiry day the exchange computes the final settlement price, the difference between that price and the strike is paid in cash, and no shares change hands. A long Nifty or Bank Nifty call that finishes 200 points in the money is credited the cash value of those 200 points times the lot size, less the STT on the settlement value. There is no delivery, no DP charge, and no obligation to bring in contract value. The only exercise-specific cost is the 0.15 per cent STT on intrinsic value, plus the usual GST on brokerage and exchange charges.

Stock options: physical settlement

Single-stock options are physically settled. Since the October 2019 SEBI move to compulsory physical settlement of stock derivatives, an ITM stock option that is not squared off before expiry converts into a delivery obligation in the underlying shares. A long ITM call becomes an obligation to take delivery and pay full contract value; a short ITM call becomes an obligation to give delivery. A long ITM put becomes an obligation to deliver shares; a short ITM put becomes an obligation to take delivery and pay. The shares settle into or out of the linked demat account over the settlement cycle, and the resulting buy or sell carries its own charge stack.

The phrase to hold onto is that a stock-option exercise is not the end of a trade. It is the start of a delivery trade, with brokerage, STT, and a DP charge attached to whatever the trader does next with the delivered shares.

The exercised-option STT, and why it is heavier

STT is a central-government transaction tax collected at source by the exchange and passed through on the contract note. It is not a charge Zerodha sets or keeps, a point covered in full in the dedicated STT and CTT note. For options, the rate splits by how the position ends.

When an option is sold to close in the market, STT is 0.15 per cent of the premium, charged on the sell side only (Zerodha charges page, as of 19 June 2026). When an option is exercised at expiry, STT is 0.15 per cent of the intrinsic value of the exercised quantity, that is, the settlement value on which the option finishes in the money (Zerodha charges page, as of 19 June 2026). Both legs carry the same headline 0.15 per cent figure today, but they apply to very different bases.

Flag for the corpus: the current Zerodha charges page lists the exercised-option STT at 0.15 per cent of intrinsic value, the figure used here. The existing STT and CTT on Zerodha trades article still shows 0.125 per cent for exercise settlement, a pre-revision number, and should be reconciled to 0.15 per cent.

The premium of a near-expiry ITM option is mostly intrinsic value with little time value left, but the rates apply to different quantities. Premium is the small price of the option; intrinsic value is the in-the-moneyness times lot size. Consider a stock call with a Rs 1,200 strike that finishes at Rs 1,290 with a lot size of 400. Intrinsic value is Rs 90 times 400, or Rs 36,000 per lot. STT on exercise is 0.15 per cent of Rs 36,000, which is Rs 54 per lot. Had the trader sold the option at, say, a Rs 92 premium, premium value would be Rs 92 times 400, or Rs 36,800, and STT on that sell would be 0.15 per cent of Rs 36,800, about Rs 55. Here the two are close because the option was barely past intrinsic.

The trap opens up when an option is deep in the money and the trader lets it expire to save a few rupees of slippage. A Rs 1,000 call on a stock that closes at Rs 1,250 has Rs 250 of intrinsic value per share. Across a 400 lot that is Rs 1,00,000 of intrinsic value, and STT on exercise is Rs 150 per lot. The trader who instead sold the option pays STT only on the premium received, which is the same magnitude of base in this case, so the saving is small on STT alone. The real cost of letting it expire is not the STT line by itself but the chain it sets off for stock options: physical delivery, delivery margins, brokerage and a DP charge on the eventual unwind. Index traders face only the STT line, which is why cash-settled positions are far less punishing to let expire.

Brokerage on exercise

Zerodha charges no brokerage on the exercise event itself. Exercise is an exchange settlement, not an order placed through Kite , so there is no executed order to bill. The flat options brokerage of Rs 20 per executed order applies to opening and closing trades that a trader actually places, as detailed in the F&O and options brokerage note, and not to the expiry settlement.

The brokerage does reappear afterwards for stock options. Once an ITM stock option is physically settled into a delivery position, selling the delivered shares is an equity delivery trade, on which Zerodha brokerage is zero, or, if the trader instead squares the delivery off intraday, an intraday trade at 0.03 per cent or Rs 20 per executed order, whichever is lower. So the brokerage cost of an exercise is zero at the moment of exercise and depends entirely on how the resulting shares are handled.

Physical settlement: delivery obligations and margins

Physical settlement of stock F&O is where the largest hidden costs and risks of letting an option expire sit. The mechanics matter because they decide how much cash or stock a trader must bring in and how much margin Zerodha blocks in the run-up to expiry.

The delivery obligation

On physical settlement a long ITM call holder must pay 100 per cent of the contract value and take delivery of the shares into demat. A short ITM call writer must deliver the shares, holding them or buying them in. A long ITM put holder must deliver shares; a short ITM put writer must take delivery and pay. The contract value at settlement is the settlement price times the lot size, a figure that can be many lakhs of rupees for a single lot of a high-priced stock. A trader who held a single lot expecting only the option premium at risk can find a multi-lakh delivery obligation landing in the account.

Stepped-up margins before expiry

The exchange imposes physical delivery margins on ITM stock options starting four days before expiry, escalating as expiry nears. For long ITM options the delivery margin rises from a fraction of the normal value-at-risk and extreme-loss margins four days out to 50 per cent of contract value on the last trading day. For futures and short options held into expiry, margins step up to a minimum of 50 per cent of contract value or 1.5 times the normal margin, whichever is lower. The sharpest danger is an out-of-the-money option that turns in the money on the last day: no delivery margin was blocked through the week, so the trader can be assigned a large delivery obligation against a small premium with no margin cushion, a scenario set out in how to avoid physical settlement of options .

What it costs to unwind the delivery

Once shares land in demat from an exercised call, selling them is the act that crystallises the cash cost. That sell leg carries STT at 0.1 per cent on delivery, exchange transaction charges, the SEBI turnover fee of Rs 10 per crore, stamp duty on the buy leg, GST at 18 per cent on the brokerage and exchange and SEBI components, and the DP charge of Rs 15.34 per scrip on the sell side, made up of Rs 3.5 to CDSL , Rs 9.5 to Zerodha, and Rs 2.34 of GST. The DP charge is a flat per-scrip levy that does not scale with quantity, so it weighs more heavily on small delivery quantities than large ones. A trader who could have closed the option for one Rs 20 brokerage line ends up paying the full delivery charge stack instead.

Worked cost example

Take a long ITM call on a single stock held to expiry, against the alternative of squaring it off the day before. Assume a Rs 2,000 strike call on a stock that closes at Rs 2,120 on expiry day, lot size 300, with around Rs 122 of premium available the day before expiry.

The headline STT on the option leg is almost identical either way, Rs 54.90 against Rs 54.00, because the option finished only modestly in the money. The cost gap comes entirely from the chain that physical settlement starts: a Rs 6.36 lakh cash call to take delivery, a Rs 636 STT line on the delivery sale, and the Rs 15.34 DP charge, against a single Rs 20 brokerage line for closing the option cleanly. For a cash-settled index option none of the delivery rows exist; the trader pays only the intrinsic-value STT and walks away. This is the practical reason Zerodha sends expiry-week alerts urging clients to square off ITM stock positions rather than let them settle.

Where these costs sit in the charge stack

Options exercise charges are not a separate line a broker invents. They are the standard charge components, STT, exchange transaction charges, the SEBI turnover fee, GST, stamp duty and the DP charge, applied to the events that an exercise triggers. The full stack and how each piece is computed is laid out in the Zerodha charges and hidden costs note and the exchange transaction charges reference. The single feature that makes exercise distinct is the STT base: 0.15 per cent of intrinsic value rather than 0.15 per cent of premium, plus, for stock options only, the entire delivery charge stack on top.

There is no separate clearing charge at Zerodha on any of this, since Zerodha is a self-clearing member, a point covered in the clearing charges note. Nor is there a separate exercise fee. The cost of an exercise is the sum of the statutory levies on the settlement and on whatever the trader does with the delivered shares.

See also

• STT and CTT on Zerodha trades
• Securities transaction tax
• Exchange transaction charges
• Zerodha charges and hidden costs
• Zerodha F&O and options brokerage
• DP charge and BTST on Zerodha
• How to avoid physical settlement of options
• Clearing charges at Zerodha
• IPFT charges
• Physical settlement of stock F&O
• Expiry day options trading
• Options trading
• Futures trading
• Intraday trading
• Equity delivery charges at Zerodha
• Contract note on Zerodha
• Stamp duty on Zerodha trades
• GST on trading charges
• SEBI turnover fee
• Auto square-off charges
• Nifty
• Bank Nifty
• Demat account
• CDSL
• NSDL
• Margin trading facility
• Collateral margin
• Zerodha
• Kite by Zerodha
• Zerodha Console
• National Stock Exchange
• Bombay Stock Exchange
• Securities and Exchange Board of India

External references

• Zerodha charges
• Zerodha support: policy on physical settlement
• Zerodha Varsity: physical settlement of futures and options
• National Stock Exchange
• SEBI

References

1. Finance Act 2026, securities transaction tax schedule, effective 1 April 2026 (equity options STT 0.15 per cent of premium on sale; 0.15 per cent of intrinsic value on exercise).
2. SEBI circular SEBI/HO/MRD/DRMNP/CIR/P/2018/67, dated 11 April 2018, on physical settlement of stock derivatives.
3. Zerodha charges page, zerodha.com/charges, as of 19 June 2026.
4. NSE Clearing physical settlement and delivery margin framework for equity derivatives.