>Stock option(out of money option)

Options,A word which generates tremendous interest in a traders mind.A usual

thinking behind buying an option is making more money by risking small amount
of capital,But many tend to loose big time in options.

What Does Stock Option Mean?

A privilege, sold by one party to another, that gives the buyer the right,
but not the obligation, to buy (call) or sell (put) a stock at an agreed-upon
price within a certain period or on a specific date.

Now a Option can be any of the following three depending on the choice of
strike price

In-the-money
At-the-money
Out-of-the-money

An option is said to be 'at-the-money', when the option's strike price is equal to the
underlying asset price. This is true for both puts and calls.

A call option is said to be in-the-money when the strike price of the option is less than
the underlying asset price. For example, a Nifty call option with strike of 3900
is 'in-the money',when the spot Nifty is at 4100 as the call option has value.
The call holder has the right to buy a Sensex at 3900, no matter how much the spot
market price has risen. And with the current price at 4100, a profit can be made by selling
Sensex at this higher price.

On the other hand, a call option is out-of-the-money when the strike price is greater
than the underlying asset price.

Now here ,I would concentrate on out of money calls,as i believe that here if you
can predict future stock movement big money can be made by risking a small
amount of capital of course it should be timed.
Time is the biggest enemy of option traders:).

Fine, So the big question ariese how to decide when to buy an out of money option.
Here since i use Elliott waves principles for my Trading ,I would try to explain
according to it.

The best option trade would be to buy an out of money call in an impulse
at the fall of 2nd wave for a great profit in third wave blast.
of course you need to find a correct wave structure for that.
Option trade is also possible at start of 1st wave or at end of 4th wave but
then the risk is more.

Now to buy a put option best time would be to catch a out of money put at B top.
Have made a small chart to explain it clearly.
Can try near 5th top too for a A wave fall but getting a good point there is a tedious
job,I hope these small hints would help traders in optimizing their trading capabilities.
If someone has got more ideas abot trading out of money options comments are welcome.

Regards
Rish


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