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Strategies & Market Trends : Zeev's Turnips - No Politics -- Ignore unavailable to you. Want to Upgrade?

To: The Freep who wrote (36521)	3/3/2002 11:01:43 PM
From: exp	Respond to of 99280

Freep, Mishedlo: I'll try to come up with a math/stat viable calculation for Max Pain for QQQs as my next project. I was thinking about the same thing that you asked as I was reading those excellent Mishedlo posts (thanks Mishedlo). The basic assumption is one of market's tendency to (partially) return to equilibrium: as the market gets away from Max Pain on QQQs, there is an imbalance between calls/puts and an incentive for many market participants to restore more balance in calls/puts. This is somewhat analogous to the way volatility indicators (VIX, VXN) work where very low/high values tend to correct to average levels.

To: The Freep who wrote (36521)	3/3/2002 11:24:19 PM
From: mishedlo	Read Replies (2) \| Respond to of 99280

I am not sure it matters when they were bought. If if does matter then I would assume some sort of weighted moving average would be appropriate. But that is not how the market seems to react. When the pendulum swings to far in one direction we get a huge snap back, like Friday (and if one looks at those times you will see we were well under Max pain and moving averages would not have mattered). Same thing in late Dec Early Jay. We had a huge rally but sunk precicely to Max pain. I doubt it mattered one iota when those calls were purchased, but they were toasted. My guess is that many of those Calls were of recent purchase (playing the Jan Effect rally that happened in Dec not Jan), but again I can think of no reason why it would matter. M