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To: Lazarus_Long who wrote (22205)3/2/2005 10:19:56 PM
From: SI Bob  Read Replies (1) of 32911
 
You're probably familiar, then, with Max Pain. I know it's more involved than my thinking on it, but the way I look at is that it's the expiration-day closing price that'll cause the most options to expire worthless. Or if the open interest on the $20 calls is 10 times as high as it is on the puts, ain't no way on earth it'll trade above $20 on expiration day. And if the open interest is nearly the same size (and large) on both sides, pretty easy to predict the closing price to the penny. $20.00. Screw the calls. Screw the puts.

About right?

I've only recently become aware of it and am watching the relationship between options open interest and the trading in the 2 weeks before expiration on a few tickers I'm familiar with to see if I notice a pattern I might be able to put to work for me.

Edit: In particular, I'm looking to see if there's predictable movement in stocks that *don't* have a lot of institutional involvement, so not as many super-deep pockets that can move the stock for the benefit of the options they sold. The idea being that I'm a lot more stupid than the institutions (after all, I'm probably buying the contracts from them) and just as stupid as the rest of us retail guys.

Edit 2: I used to actually do very well in options trading with no more than 10% of my portfolio in options, and had gotten to the point of only 40% expiring worthless. I've since completely lost my options mojo. My proudest moment was a 20-bagger in 2 weeks on INTC calls that expired the day after earnings. Years ago. When they'd reliably sandbag mid-quarter so they could pull off a nice beat.
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