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Strategies & Market Trends : Gorilla and King Portfolio Candidates -- Ignore unavailable to you. Want to Upgrade?

To: shamsaee who wrote (28370)	7/19/2000 9:52:16 PM
From: broken_cookie	Read Replies (1) \| Respond to of 54805

Shamsaee, Sorry to butt in, but I'd like to take a crack at that. The trend I have noticed is that option week can be a reversal of the trend for the two weeks previous. It is not bulletproof and IMHO is not reliable enough to be traded. The reversal effect is stronger when the previous trend was up. The theory works something like this. I'll use the long call example. Behind every option trader buying short term speculative calls, there is not enough of a supply of covered call sellers or high level traders willing to sell naked calls. The other side of the trade is an institutional arbitrageur. They sell you the calls and go long the stock capturing the premium and laying off the risk. Most option traders that survive long enough to stay in the game immediately sell a position that is moving against them. So when expiration week rolls around after an uptrend, a lot of the open interest in in ITM (in the money) calls. Most of those calls are cashed out rather than converted. As the calls are cashed out, the arb sells the hedged stock position creating additional selling pressure. Like I said before, this is an influence during expiration week but can easily be overwhelmed by economic news. It is stronger following uptrends than downtrends probably because equity calls vastly outsell equity puts. I don't think it is tradable and doubt it is of interest to this thread other than possibly a curiosity.

To: shamsaee who wrote (28370)	7/19/2000 9:58:35 PM
From: Uncle Frank	Read Replies (1) \| Respond to of 54805

>> The market tanks pretty hard every month on option expiration week. Is this a coincidence or have you also seen this pattern in the past also. I think it would be more accurate to say that the market is volatile during options expiration weeks, as in good times (which are faint memories at this point) it often soars. There is a creative theory that, since most options expire worthless, a stock will gravitate towards a price that will lose the most money for the universe of investors that are in puts and calls. This is called the the maximum pain options analysis technique, or just Max-Pain™. You can read up on it at ez-pnf.com To make it even more fun, there is a max-pain calculator, which is a great help in figuring out how to lose money in creative ways <gg>. iqauto.com uf btw, none of this really works, but it will keep you off the streets <lol>.