<font color=red>Max-Pain options analysis shows buying pressure up to 22.5
Just ran a max-pain options analysis spreadsheet on the open interest for the July Intel options. The "max-pain" point is at 22.5. There is only 1.9M shares of buying pressure between 20 and 22.5, however, there is a full 9.6M shares of buying pressure from 17.5 to 20.
AMD is in a similar situation. There is buying pressure in AMD up to 12.5 of 250K shares and from 7.5 to 10 there is fully 1.51M shares of buying pressure. Above 22.5 for Intel, or 12.5 for AMD, the options open interest would cause selling pressure.
The buying pressure from price x to price y is calculated by determining the NET number of option contracts that will reduce in value as the stock price goes from x to y, and then multiplying by 100.
The conspiracy version of max-pain theory is that the options principals who sold most of the options to the public will do anything to reduce the value of the options they sold by fixing the stock price. The non-conspiracy version is that if they have made a bundle by selling calls, they will use the money to buy stock and maintain a neutral position, but if they have made more money by selling puts, they will sell stock to hedge their position.
In reality, buying pressure of a million shares does not mean that the options principals will necessarily buy a million shares to remain fully hedged. They may wish to be only partially hedged, and not all the open interest in calls and puts was sold by the options principals.
EDIT - also, the open interest numbers can change considerably in the last trading days of the cycle. Another was to look at the theory is that on next Friday, all the in the money calls and in the money puts will be exercised. Those who sold the calls will have to buy stock and those who sold the puts will have to sell stock if they are not already "long" or "short" respectively.
Petz |
