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Technology Stocks : America On-Line (AOL)
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To: Steve Robinett who wrote (29673)8/20/1999 3:07:00 PM
From: Dr. Zax  Read Replies (1) of 41369
 
>>A close today at 100 would make the most contracts expire worthless--max pain to the most people.

Max-pain may be a little bit of a misnomer. Just remember that for people who sold covered call they are happy if their contracts expire worthless. I think there is quite a bit of value in the max-pain analysis, but only if you understand it. If it is true that max pain works then the best way to play it is to wrote calls just above the max-pain point and write puts just below it. If you are in for the purpose of accumulating stocks, then you want to buy calls just below the max-pain line and but puts just above.
Other than a psychological draw... there should be no connection between the max pain and the actual closing price of a stock. There will, however, be a close connection between the price that a large firm finds it most advantageous to close at and the price it closes at on a witching Friday.

Dr.Zax
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