As we get into the earnings season and volatility increases due to local and global factors, it is time for traders to trade through options rather than taking unhedged positions in the futures market.

For, stock-specific volatility is going to be very high over the next few sessions.

The environment is such that if a company announces results in line with the expectation of the market, then the stock is going to fall less as a large number of good news is already built into the analyst forecast. But if the results are below the street’s expectation, then we are likely to see some strong negative reaction.

So for investors, while it may appear to be wastage of money, buying some out-of-money put options may prove worthwhile and can protect them against any sharp losses.

The first strategy for this week will be to buy put options for the stocks you are holding in your portfolio. The problem an investor may face is that a majority of the stocks they hold may not have liquid options.

The other strategy for the week will be to buy a call option at strike price 5,400, which is quoting at Rs 58, and buy a put option at strike price 5,200, which is going for Rs 38.

Investors should follow these two strategies as they will protect them against any sharp losses in the Nifty. At the same time if there is a sharp rise in the index, investors stand to gain from that upward move as well.

But the total amount spent by a trader could just go waste in case Nifty closes near the present level. That is the cost an option trader has to pay in the earnings season.

Another strategy for an aggressive trader could be to sell a call option at 5,500, which is now quoting at Rs 23. As Nifty is very close to its strong resistance level, it may be tough for the index to cross this level in a hurry.

Another strategy could be to buy a Nifty future, which is now quoting at the level of 5,356, and at the same time sell a call option at strike price 5,300, which is going for Rs 114. This pegs the time value in that particular option at Rs 58.

This way the profit for the trader will be limited, but he will be protected till 5,242 in the southward direction, which is a strong support for Nifty.