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Pastimes : Tidbits
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To: Didi who wrote (93)6/11/2000 12:09:00 PM
From: Didi  Read Replies (1) of 1115
 
URLs: Maximum-Pain Theory Options analysis & meaning...

iqauto.com
ez-pnf.com

What does Max-Pain mean?:
ez-pnf.com

By looking at the price of the underlying issue, on the last trading day before option expiry, (Note: options officially expire the day after the third Friday of the month.) it has been seen, with statistical significance, that the closing stock price tends toward the option strike price that forces the greatest number of options to expire in a worthless condition.
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Great comment by ArchAngel on RG's Options broad.
(Thandks, Arch).

>>>...a couple things to consider:

1. Put vs. call imbalance (the so called MaxPain thesis) will usually only have an impact on stock prices if the minimum open interest valuation price is reasonably close to the current price.

2. Don't forget that the specialists (unlike most retail option traders) are constantly working to minimize the risk of their positions through offsetting and hedging. When the stock price is a long way from the minimum valuation price, the specialists aren't usually sitting there staring at it - they've long since offset/hedged their positions and aren't concerned about it.<<<
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