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

To: mishedlo who wrote (36593)	3/4/2002 10:48:27 AM
From: jjstingray	Read Replies (1) \| Respond to of 99280

Mish, for the max pain theory to work, can the price just hit max pain this early in expiration? I think you said that if max pain is hit during expiration, then it is to the MM's advantage, but if it is hit a week and a half before does it matter?

To: mishedlo who wrote (36593)	3/4/2002 12:04:20 PM
From: dwayanu	Read Replies (1) \| Respond to of 99280

Hi Mishedlo: ...That said, a close analysis (looking at the actual difference between what would happen at 37 vs 40) was not statistically significant, to either my eyeball or my crude numerical analysis. ... My analysis shows 37 to be more painful than 40. All counts below in thousands and dollar figures in 100,000's (thousand contracts times 100 shares/contract). Open Interest counts from nasdaq.com Monday 11 AM. Counts at each strike rounded to nearest thousand. Take two scenarios, QQQ closing at 37 and at 40. Calls at 40 and above don't count because they're worthless in both scenarios. Ditto puts at 37 and below. Calls below 30 and puts above 50 ignored. There are 259 call contracts from 30 to 36. They would pay $685 on a 37 close and $1,462 on a 40 close. For example, the 93 contracts at strike 35 would pay $2 each at QQQ 37 close, or $118, and $5 each at QQQ 40 close, or $465. There are 232 call contracts from 37 to 39. They would pay $0 on a 37 close and $512 on a 40 close. There are 34 put contracts from 41 to 50. They would pay $199 on a 37 close and $97 on a 40 close. There are 223 put contracts from 38 to 40. They would pay $472 on a 37 close and $0 on a 40 close. QQQ close at 37 pays $1,356 (685 + 199 + 472). QQQ close at 40 pays $2,071 (1,462 + 512 + 97). ....giving the 37 close a clear Max Pain win over 40. The increase in call contract value going from 37 to 40 is more than twice as much as the decrease in put contract value going from 37 to 40, due to the large number of call contracts in the 30 to 36 range and the small number of put contracts in the 41 to 50 range. - dway