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To: orkrious who wrote (155156)	3/9/2002 1:49:04 PM
From: mishedlo	Respond to of 436258

I have no statisicts on Max Pain. I do have observations. Max Pain may not fare well in a strong trend, especially a panic up or down move caused by huge stimulus. I hypothesize that it only works half the time, yet if we close at QQQ 36-38 this expiry one wouild have to call it a success. If we do, this will be the 4th month in a row of max pain success. The trick is knowing when to use it and how to apply it. There really are not that many options on KLAC EMLX and a whole bunch of other garbage like bios and the like. Attempting to use max pain on stuff like that is a waste of time usually. That is where most people, including myself have fallen down in the past. I think the key to this mess is in looking at INTC MSFT QQQ CSCO. Those stocks will pull the whole market with them when they move. INTC simply has been the tell, for at least 3 out of the last 4 months perhaps all of them. It has closed right on pain more frequently than any in this group. When it soared to 36 it was so far above pain it was silly. When INTC falls 4 points to pain, it is bound to drag a lot of stuff down with it. Two weeks ago it was at 28 or so (is that correct) and pain was at 32 1/2. Warning signs should have been ringing. They were, and I did a post on it. Unfortunately all I did was get out of the way instead of making a veritable killing by going long. Strike 35 QQQ calls from the most recent bottom probably cost $1. They are now worth $4. Two weeks, just like that. Now people are buying Mar QQQ 38 calls like mad. Call me nuts but I doubt QQQ finishes above 38 at expiry, and I still think 37 +- .5. Quite frankly I am wondering if the best game is to do nothing except wait until 2 weeks before expiry, see how lopsided things are, and go the other way. The two single best plays this year, and I called them but did not play them (cause I am stupid) was betting huge against MSFT the last time it hit 70, and CSCO the last time it was above 20. There was a veritable fortune to be made on those cause unlike garbage, options on those are cheap cause they do not move much. The tell was a simply the enormous number of MSFT calls at strike 70 ahead of its earnings; CSCO had 120K worth of strike 20 calls vs 20K of strike 20 puts, so CSCO was totally doomed to fail or at least not go up no matter what their earnings were. Both those plays were plays that may not have gained much, but were extremely unlikely to fail. In the end, both put plays would have been spectacular. Already people are loading up on APR 38 calls. I am hoping this trend continues so we can see some down next month. Favored scenario is a pullback this week to QQQ 37, then more up thru thru the end of the month. If this sucks in huge $ in call options we will reverse towards April expiry. If people keep betting against the rally by buying tons of puts, we keep rocking up. M

To: orkrious who wrote (155156)	3/9/2002 5:53:00 PM
From: jjs_ynot	Read Replies (1) \| Respond to of 436258

I have done a statistical analysis of Max Pain. I performed a paired test of stocks within the Nasdaq and Russell (large and small cap) with the largest outstanding open interest relative to daily volume. I selected one stock above Max Pain and one below Max Pain ranked by the open interest metric. To a statistically significant level (alpha = .05 , i.e. 95 percent confidence) the stock prices moved together. That is the price above max pain or price below max pain moved up. This did not work when the deviation of one or the other was more than 4 strikes from max pain. Regards, Dave