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Strategies & Market Trends : Jim's Nasdaq100 Special as a basket. -- Ignore unavailable to you. Want to Upgrade?

To: OX who wrote (1365)	10/17/1999 3:56:00 PM
From: Matthew L. Jones	Respond to of 2103

I guess what I was getting at (and evidently didn't communicate properly) was that maxpain will probably work all month long but better in the fourth week. Here's why: 1) Option traders hedge by taking the opposite position in stocks and 2) Stock traders also hedge their postions using the option market. Now, admittedly, I don't understand the finer nuances of hedging one market against the other, however, it would seem to me that it would be that phenomenon which causes the stock price to seek out the "max pain" option strike price. If that premise is indeed correct, then maxpain would work throughout the month and would work exceptionally well as expiration closed in. If this is true, then one can further assume that while maxpain is "fairly good" predictor of a single stock's movement, then with an average like NDX, the composite maxpain would be a "very good" predictor. Again, like we discussed-- not the maxpain for the QQQ, but the composite maxpain (as we discussed last week) which is derived from the individual components. And if it is a predictor of QQQ's movement, then we may be onto the holy grail. No, no such luck <g>. Does that make sense? Matt