Some Newbie Questions

Hello,

A quick little about me,

I am a new trader or rather.. I should say a new wanna be trader .. I have not traded a dime yet.. I thought it would be better to get my theory concepts right.. , also, I am just too apprehensive when it comes to putting my money on something I dont fully understand ..

heh .. as a new trader, its better to be safe than sorry I guess, I have heard and read too many market horror stories and I only have
15,000 Rs 'risk money' for the year ..


So with that said..

I tried to google a lot but failed to find answers for following questions and now I am stuck .. Please help me .. thanks

Questions:-

1) For Pricing of an option, which price of the UNDERLYING is used? Spot price or the Future price of a SPECIFIC month that matches the expiry of option?

Let me clarify the question: Say stock XYZ is trading at Rs 90.. Say I am looking at strike of 100 for XYZ option which expires in April ..to go long.. now should the value of XYZ SHARE go above my call option strike price of 100 OR the value of APRIL FUTURE CONTRACT of XYZ share has to go above my option strike price of 100? for the option to be considered "in the money" ?


Generally speaking, the price of april future contract of XYZ share will always be more than the spot price of the XYZ share .. RIGHT? ..

So, if the CMP of XYZ share goes up to Rs 98 and the April Future Contract goes up to say Rs 103 .. is my long option at strike price of 100 .. in the money or out of the money ?


[because future price is nothing but spot price + interest rate so it will be more and will reach the strike price earlier than stock price of tata.. RIGHT ?]


2) Coming to the illusive Implied Volatility, I understand the concept. Now, say I am looking at some nifty strike call premium .. I look at the IV .. say it is showing 40% .. now, I totally understand what it means, but what I dont understand is what do I compare it WITH? .. from where to find out what is NORMAL for nifty ? to figure out if 40% is above or below the NORMAL volatility .. what is NORMAL ? Statistical / Historical? if yes, how to get that?
On 26th NSE started INDIA VIX [ Jai Hind ! ]
So should one compare IV to current VIX ? to see if IV for a specific premium is more or less?


Please do let me know if the questions are not clear, I will try to ask them again in different form.

Thanks

Let me clarify the question: Say stock XYZ is trading at Rs 90.. Say I am looking at strike of 100 for XYZ option which expires in April ..to go long.. now should the value of XYZ SHARE go above my call option strike price of 100 OR the value of APRIL FUTURE CONTRACT of XYZ share has to go above my option strike price of 100? for the option to be considered "in the money" ?

Stock Price or spot price of XYZ needs to go above 100 to be considered "in the money" ... Not the futures price ...

2) Coming to the illusive Implied Volatility, I understand the concept. Now, say I am looking at some nifty strike call premium .. I look at the IV .. say it is showing 40% .. now, I totally understand what it means, but what I dont understand is what do I compare it WITH? .. from where to find out what is NORMAL for nifty ? to figure out if 40% is above or below the NORMAL volatility .. what is NORMAL ? Statistical / Historical? if yes, how to get that?
On 26th NSE started INDIA VIX [ Jai Hind ! ]
So should one compare IV to current VIX ? to see if IV for a specific premium is more or less?

I don't think IV is going to be of big help ... Let me know what strategy you are planning on? Yes, Premiums are directly related to VIX, more the VIX, more will be the premium and vice versa ... Bollinger band is a pretty good indicator of when VIX is going to rise or fall and will help you in many ways ...

When scanning chart for day/swing trading which time frame should be used for good results.