<referring to Max-Pain theory of option's expiration.>
No, that is somewhat opposite in scope. Using this page as reference, ez-pnf.com , the theory there is that pressure will be brought to bear to the midpoint creating as many options to expire worthless as possible.
Oddly, I am reminded of an argument that a CBOE MM once postulated, that it is patently false that 90% of options expire worthless. I may have saved his e-mails on the topic, I'll check later.
What I was referring to, is the tendency for markets to move in the direction of heavily weighted positions on Indices; Indices such as the OEX or the SPX. Subtle manipulation presumably by large money that has positions in the direction of the move. This would have the opposite effect of Long Calls (for example) expiring worthless. Rather, it would push OTM Calls deep into the money as momentum increased.
There is an old method that is analogous to this. I do not know if I posted a link to it prior, I've been off SI for quite some time.
This method was first used, to my knowledge, around 1990.
This took quite awhile to find. I should have bookmarked it, apparently. programtrading.com
Now that's still not exactly what McMillan was looking at. He was looking at where the point was where Programs would likely hit given momentum in the direction of where the weight of the options were. His theory is that large money, if they are Long calls, would have an opportunity to drive the market in the direction of those Calls once they approached "In-The-Money" status. What Camp is postulating above is a hypothetical manner in which the market might be driven. Still, the other factors have to line up; the larger money must be postured with Calls that would appreciate providing a run occurs.
The logic about Max-Pain makes sense but it was not really the same issue. At Expiration I would presume the larger money is looking to push the Indices and paying scant attention to stocks unless those stocks have a significant weight on the SPX. |
