How to trade index and stock options of December expiry?

DLF seems to be quite bearish as the real sector seems to have lost favor with the investors, inspite of property prices not dropping to a bigger extent in India as compared to the globe. But would the downtrend achieve its target in short frame of time, to give profits on investment in put options, DLF could trade at 310 and if possible dip to 260 by the year end, with a stoploss at 372, a short sell position could be initiated in this stock, if 310 is considered to be the target the risk reward ratio doesn’t justify disinvestment in DLF, the option contracts of december expiry seem to be quite expensive as the 310 PA is trading at close to 9.5 Rs, the strike price 310 is more than 11% out of the money and the premium stands at close to 3% of the Last Traded Price of the stock.

ONGC is another stock whose charts give a feeling that distribution is underway, should the stock not have bidders above the price of 1190 and generate enough sell orders to have bid prices even below 1120, the stock prices could weaken further and by the year end a bid price of 972 on the stock could find a place in the best 5 buy orders, so keeping a stoploss of 1190 the stock could be sold and the square order could be 1000 or below. The options on the underlying stock dont attract traders and as such is hugely illiquid, The December expiry contract with a strike price of 1050 which has the last traded price of 12.25 is trading at a fair value, if the downside target of 972 turns out be the Last Traded Price for the stock on any day upto 31st December, the 1050 PA could be offsetted at 80 Rs/-, close to 500% return on investment, The lot size of the contract is 225, so the total cost of investment stands at below 3000/-

NTPC just like ONGC is in a distribution phase, if the stock continuously attracts supply from the distributors so that there is no bid for the stock at a price of 209 which is just 0.5% away from the current close, or if this seems to be a quite close call, the best buy order on the stock, if it is not able to surplus 213 then the scarcity of the buyers might see an investor bidding on the stock for just above 190 or even 182 by the year end. The December expiry Put Option on the stock for the strike price of 200 was last trade at 2.5, which is a fair price if the stock opens without change on Monday, the investment of 4000 as the lot size of the contract is 1600 and can make the investor double happier as the investment could return double the initial investment if the scarcity of the bidders see the price plummet to our initial target of 192.

Options on Stocks are illiquid, hence utmost care should be taken while executing them, I am advising mostly sell as the Nifty looks to be in a distribution phase, after the initial euphoria which saw the index give more than 75% return to the investor who invested at March 2009 low which was the testing of the October 2008 low, the velocity of bullishness is decreasing although the index is making new highs after the smaller corrections of 5-12%, so the index might (if the history repeats itself) atleast correct 50% of the March 2009 to the October 2010 gains, 50% of 2500 to 5200 stands at 1350 which means investors might bid for the stocks composing the index in such a way that the Nifty Index on the trading terminal reflects the value of Nifty to be at 3850 in the coming time, The stocks composing Nifty index could not find sufficient investors bidding at higher prices and the stock market had to be closed for 1 hour in May 2004 due to the index hitting lower circuit, the lack of investors bidding saw the history repeat itself in May 2006 and January 2008, could we have one now again or in January 2010. If the investors don’t bid the stocks composing the Nifty index in such a way that Nifty trades above 4988 (or 5200 the next stoploss) then the deficiency of buyers in the stocks composing the Nifty index could see the index trade at 3850 by the year end or the first month of the next year.