Sparkle, ***OT***
The Max-Pain study, as I envision it, is used to see if the open interest distribution might 'drive the stock price' so that the maximum number of them, the contracts, expire worthless.
The MAx-Pain effect is a second order effect is easily swamped out by breaking news (breaking means unplanned, or unexpected), world events, or sudden momentum. Look at how far off the LU Max-Pain was two months ago, or DELL last month, when momentum and news was in sway.
I find Max-Pain to be indicative three to four weeks out from expiry, but I use them to check the pulse of where I think the stock may be when I do the 'week before expiry' graph. Which, by the way, is the one that you see as the 'final' version for each of the historic Max-Pain graphs in the study. you are not looking at the open interest on Expiry day, but the Friday before. I just add the Expiry stock price.
I guess I'm too conservative (risk adverse) to short open interest... brrr.... 8-o Sorry.
Ben A.
ez-pnf.com |
