Paul, ***OT***
Well, there is one thing...
If I look at the current Max-Pain point and it says 10, but the stock price is 13, depending on when in the month this occurs, it can say to me..... Since the Max-Pain effect is a second order effect ie. it gets swamped out by anything that can cause large momentum moves eg news releases, earnings reports, up/down grades, Greenspan, (Kurlack, in the case of INTC), etc. one of these other factors has kicked in and the natural 'gravity' of the Max-Pain attractor isn't going to be the primary force driving the stock price right now. Nothing to do with premiums, long or short positions, covered or naked... the options MMs are out of the driver's seat and they are going to feel pain, for a change, if they are short/naked.... It happens.. and the MMs do get their clocks cleaned.. take a look at the DELL Max-Pain chart history. Or the LU chart on months when there was momentum driving the price of the stocks... the open interest was blown away.. options were exercised and many shares had to be purchased/exchanged.
One thing, though, it is the option 'writer' who is the driving force in the Max-Pain analysis and effect, not the option 'buyers'. The writer gets his premium up front and, from then on, wants to protect it by 'guiding' the stock price to have the contracts expire worthless. You seem to be looking at this from the 'buyers' side... they do not count... they usually only get to feel the pain. The writer is 'the house', the buyer is 'the player'.
If you wish to try your algorithm for a couple of months, more power to you :-)) It is too much work for me to tackle, esp. if the much simpler(k.i.s.s) Max-Pain technique yields up a solid tracking record better than 50% of the time (and it's a lot higher than that now)... then the house will win in the long run and you own the house.
Ben A.
ez-pnf.com |
