I had brief discussion about this with Basant. It can be used as a TOOL for our advantage. Here are some examples how that can be used.

1. Lets say you are holding Balrampur Chini since 10 months. Stock has gone up 3 times so if you sell you attract short term gain which is big. If you don't sell, you are risking down cycle. So you can short futues for two months until your holding is more than one year and save capital gain tax.

2. Lets say Bharti Airtel is @300. Sentiment is negative but you find value there. There is no rush to buy and your target price is 275. You can sell 280 puts.  If it crashed further anyway you cna get Bharti at your price. If it doesn't go there, and just fluctuate around 300, you keep collecting put premium.

3. I used this for myself in LIC Housing. Company is doing great on exchange and bias was positive. So no need to rush to sell. But I wanted to exit on higher price.
So I sold call options above current mkt price and collected premium. So instead of selling at price X, I sold calls at price X+40. So even if price runs up your selling price is X+40+call option premium for two months (bcoz first month price didn't reach there).

4. If some of the members are working for a listed company. They are getting stock option at 20% discount of mkt price. You don't like company for investment purpose. You also have 2 years to opt for option. You can keep on selling calls at X+10%x. So if runs up, anyway you opt for stocks and sell in the mkt. Or it becomes your source of income until it runs up.

Downside: cost of transaction + blocking margin money. If price still runs up, temporarily you put more margin money.

I am not sure if I explained it in simpler way. I personally use F&O as a tool and for speculation.

Nice To See Any One Talk Abt Fut And Opt Also On This Site.

Before Coming To This Site I Was Thinking That Money Is Only Made In Fut Not In Cash Market Is Only For Small Trader.

Now After Reading Post And Experience From Senior Member Of Forum I Come To Know That Fut Market Is For Small Trader Big Guys R Cash Market For Long Term Investment.

PS. I Love To Trade In Fut A Lot.

You are right. It is good point But you save huge short term capital gain tax which is certain. For a month or two, tax on smaller business profit is ok. You may also get loss in business which can be written off and your LTCG is tax free!

I am not telling here that one should go blindly and play everytime. But this can be very good tool which can be useful sometimes.

Manishji just a point would like to add IMHO
-Points 1&2 could be risky , in case of selling derivatives, gains are limited but losses could be unlimited
-Points 3&4 which is covered calls is useful if we are holding the stock in volume in fact it is far better than dividend income
-so when we do not know what to do we should start by buying a put/call option only- that way a worst case loss in a month is about 10-15k