bowledover,
Basically, this is the point at which the maximum number of options contracts (both puts and calls) will expire worthless for the nearest expiration date.
So, if the Max Pain point for CSCO were, lets say, 35, then if CSCO closes at 35 when options expiration occurs, then the maximum number of contracts will become worthless, and the professionals who sell most of these will win (again). The idea is that those who sell these contracts will do anything in the power to make sure these contracts expire worthless. If they can do that, they keep the premium they were paid, and no stock gets "called away" or "put" to them. And, they can sometimes have considerable power to do just that, driving the stock price in the appropriate direction. Of course, they've got other tricks up their sleeve also.
You might search SI for some links, but here's one for finding the Max Pain point for any stock that trades options:
iqauto.com
Regards,
Walkingshadow |
