Matt & All; About MAX PAIN and more than you likely
want to know . QQQ options don't trade enough the thing I found where the BIG money is, where to look is MSFT, INTC, DELL, CSCO, SUNW, AMZN..like that and do a composite on them they will over ride
the qqq options.
MAX PAIN is not one of my ideas but I was quick to see it has power
and my hats off the guy who started it.
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That said there are several ways to look at it..
But the very best one to catch is when it's violated
in other words when it goes the opposite way..and say the
calls OR puts make tons of money
when you catch that at expiration you have a sure bet staring
you in the face for right after
It's early part of the next set that is told by the current
expiration.
1 If options expire with calls making a ton of money the market
will sell off right after.
2 If Puts make a ton the market will rally.
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It's not real strong but the calls made money this ex so I see some
more sell off in a day or so.
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The second thing I look at is that they do tend to move towards
max pain , but there are times that's violated and when it is
and if it's a lot you sure want to catch the next mouth.
Calls big profit= sell off
Puts big profit = rally
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Think about it , them who came in the money buying calls
don't really want the damm stock , they want the profit.
Those who came in the money buying puts, cause the losers
to have to buy stock.
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Sunw should pull back in a day or so..lots of calls made
money. QQQ may have a little bounce but I see some more down
side even if it does at least short term.
But Don't short Dell or MSFT , while they may go down
some, by max pain it's not worth the risk.
BTW the dollar price of max, ie= where max pain is not all I
look at . The amount of OI on that side is often more important
If you look at the slop of max pain on SUNW while it was
at pain 80 and closed at 92 , there were not a ton of people who
made money..had that call slope been steeper it would equal
a lot more contracts.
Then look at amzn pain 65 closed 75..less of a gap above the
pain by 2pts ..but the slope is better, however neither one
has enough slope to get real excited about.
To make it more to the point look at IOM..
pain was $5 closed at 3 3/8 ..lots of percentage there BUT
the amount of put winners don't amount to a hill of beans
the put slope is next to nothing.
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Micro analyzing them and the slope can yield even more info
( the charts are great but the scale on the left is
hard to guess at.)
For academic purposes only lets take first Sunw and compare it
to AMZN..for max pain violation.
Sunw the point on close call side ay 92-9/16 seems to be 90M $
the put side is subtracted at 50M $ = 40 million $ of stock to be
sold "market cap of sunw =72.25 ) so we have 40 to 72.25
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Amzn is amounts to about 15 mil $ of stock to be sold doing
the same thing, and that is 15mil $ to 25.31 market cap
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40 to 72.5 is to 15 25.31 as 1.8 is to 1.68
Amzn has a .12 = 6% more downside risk than sunw
due to the amount of calls that made money.
Even though sunw violated the max pain by $12 and Amzn
by only $10 , amzn is still the better short, due to
the total OI amount of $ winners relative to market cap.
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This may not be said real clear..but think about it good
before you hit me with a ton of questions, and remember
I just did an eyeball guess on the curves and put it out
for academic reasons to show the principle I don't claim
the numbers are correct.
Last to be more specific on the EX date winners/losers
bring up the option chain and just do that month counting
the amount of OI left that's in the money on both sides
and get the difference.
Like I see 2.2 M shares of CSCO going up for sale Monday
or some time next week just due to last months call winners.
She has such a big float I don't know how much that can
hurt her if at all, but it sure won't help her.
I haven't done the nitty gritty on any others yet,
and need to size them up in relation to one another as I will
likely short one with the most to sell in a ratio to
it's float.
Jim
Max Pain Ref
ez-pnf.com
Option chain url
edreyfus.com
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