BSE cuts number of equity options strikes to curb tax evasion

To plug another loophole in the stock market whichtax evaders often use, the BSE has decided to reduce the number of strikes it will allow in any equity options contract to three from earlier seven. From now on there will be three strikes with one at the money, one out of the money and one in the money. This means say if the price of a stock is Rs 1,000, then there will be one contract at Rs 1,025, which is out of the money contract, another at Rs 1,000, the at the money contract and another at Rs 975, the in the money contract. Under the previous system, there would have been two more out of the money and two more in the money contracts  Stock Market Tips

Market players said at times options buyers would buy deep out of the money contracts, that is contracts at a price far higher than the prevailing stock price. As the stock price would never reach the deep out of the money strike price, the options seller, also called the options writer, would pocket the premium while the buyer would take a loss in his books which he will set off against some other market-related gains. The options buyer and the seller would also settle their accounts privately. Through such practices some operators in the stock market avoided paying taxes, marketmen said. BSE's move will give less options to such operators to save income tax, they said  Free Share Tips