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Strategies & Market Trends : Swing Trading With Options

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To: underdog430 who wrote (40)	8/9/2001 1:03:45 AM
From: Dan Duchardt	Read Replies (1) of 88

Mark, The person on SI I think most likely to know the answers about institutional and hedge trading is KFE over on Subject 19444 He's playing a lot of golf this summer, but stops by from time to time. Very helpful and really knows his stuff. The support and resistance argument has the same basis as the theory of Maximum Pain. The assumption is that the smart/powerful money is on the short side of open interest, and the fish are on the long side. It is therefore in the interest of the smart money to expire as many options worthless as they possibly can. A large open interest at any one strike is therefore likely to be resistance if calls, and likely support if puts. You can find the complete MaxPain profile of a stock for any month at iqauto.com It is a dollar calculation that considers open interest at all strikes and computes the value of all open contracts. The calculation can be done for any closing price, but they tabulate and graph the results at the strike prices. As expiration approaches, the MaxPain point and price tend to converge. Often the MaxPain point moves toward price as people close contracts about to expire. Dan

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