Amit,
A few things to know about options
- The fact that the risk is "less" would make you hang on to options more than you would be if you were trading in EQ or futures. And finally the options may expire nearly worthless. Keep a stop loss on premium value - something like 30% loss.
- Options are great in a trending market but once you hit a range bound market, it is better to dump them. Even in a trending market, falls are always faster than the rises by the very nature of the markets. Most novice options traders ignore Puts.
- OTM options in stocks are risky. ATM options are better off even if they are pricey. With the lot sizes that we have, you would need just a 1% move in your favour and most stocks move more than that in a day. OTM options in Nifty make sense at the start of a swing.
- "Local Smart Money" writes lots of calls in their favorites (Chambal, IFCI, ISPAT, Renuka etc) during the third week of expiry when the stock prices are very closes to the respective strike prices (like 60 or 65 for IFCI). This pulls a lot of suckers who see the stock prices gradually drift down during the last week of expiry. Beware of such regular patterns.
- One can always look at highly traded options in heavyweights like Reliance, SBI, ICICI, Tata Steel. These give chances for pair trades - for e.g. having Reliance calls and SBI puts might have been helpful early part of this week. The less traded options are better left alone.
Having said all that, options are great weapons. Watch, practice and learn more. Our resident expert - SM-Bhai - maybe able to give you more insights.
E.