I'm not too technical about this as the market is a very imprecise animal, but do have some underlying rules. One is 'let the trade come to me, do not chase the trade'. I think this answers your point on volatility as if the share price is all over the place in tends 'not to look right to me' therefore I do not trade. Put it down to experience.
My stops are definately a function of risk though and generally the more risk the tighter the stop. I trade instalments alot but only focus on the underlying share not the derivative as they tend not to be to liquid and frankly this does not work if you do not have liquidity. (I do not trade short term out of the money calls and puts, that's a whole new ballgame. HDRWMA was a one off and a bad example. With HDR I agree it is a matter of glory or death at this stage.) The discount I put one my daily stop is a function of the volatily of the share price. If the stop is triggered I sell. (intraday)
A good example of this is I currently hold OSHWAG. I would have been stopped out with a normal trialing stop when it came back down to 74c but my stop was not triggered and my position is much advanced.
