Hi!Di! - MaxPain theory.
There is a major flaw, IMHO, in that theory:
one should take into account the shift in Open Interest.
I have observed large differences in OI between the end of a calendar month and 2 weeks before expiration.
Also, you wouldn't expect MM's to wait for the last days before hedging their positions.
When new positions are entered, MMs do this on their portable terminal. These terminals also ofer a choice of neutralizing their portfolio... you can expect MMs positions to be neutral at the end of the day.
Also, according to CBOE, 30% of options expire worthless not 90% as commonly assumed).
optioninvestor.com uses another indicator: the highest OI on a particular strike.
As MM's positions are neutral, they could be interested in having one particular strike expire worthless and tend to guide the market towards that one.
As high OI's are not consecutive in strikes, this is, IMHO, an indication of possible overhead resistance (or support).
An indicator among others. |
