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Politics : Formerly About Advanced Micro Devices

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To: tejek who wrote (141837)	1/18/2002 11:11:42 AM
From: TimF	Read Replies (3) of 1584556

Tim, I don't understand fully how calls and puts work but apparently during each expiry period, the combo of all the puts and all the calls yields a strike price range. So for AMD, it might be $16-18 with $17 most likely being what someone today referred to as the strike price. I think probably Max Pain is the equivalent. I think you are getting max pain mixed up with strike prices. David explained the basics pretty well. A good place for more info is. cboe.com I'll give a simplified example. Lets say you have a stock with the symbol XXX. It is currently at $15. There are calls and puts available at $10, $15, and $20. I'll also assume that the stock price does not move between now and expiration so it ends up at $15. If you had bought XXX $10 call (or a $20 put) it would be in the money and it would be worth something, however it would probably be worth less then you paid for it. Lets say you paid $7 (per share or $700 per contract) for the XXX $10 call. If the stock does not move the value of the call at expiration would be $5 (ignoreing commision) so you would have lost $2 per share or $200 for each contract you bought. Max Pain is the value for the underlying stock, at expiration, that will result in the lowest value for all outstanding puts and calls. Some people believe that the large institutions who sell a lot of these options try to manipulate things so that as many of them as possible are worthless or at least have minimum value as possible. There is one "max pain" point (although that point would change as options are bought and sold). There are a number of strike prices, sometimes a large number. When the options expire the strike prices don't change its just that options with strike prices that are out of the money at expiration become worthless. One example of this was my Jan 01 AMD strike price $50 calls. :-( Right up to expiration I had the right to buy AMD shares at $50 (the strike price stayed the same), but since the stock price was below $50 only an idiot would have exercised the calls. Maybe I was and idiot for buying them <g> but not a big enough idiot to greatly increase my loss by exercising them. Tim

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