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

To: Ted Downs who wrote (41249)	3/15/2002 11:31:21 PM
From: mishedlo	Respond to of 99280

Mish, thanks for the analysis on max pain. I see though that the accuracy is much more predictable for volume stocks or QQQ. So for example QQQ is now at 36 for April exp. Will that usually change frequently through the month ? I have only been checking the stocks occasionally and haven't watched for price changes as option positions change in volume. For April Qcom max pain is 45 and intc is 30 with QQQ at 36. Ted Ted Right now it is way too early to make determinations about direction right now (based on max pain). Furthermore, the direction we head for the next two weeks could impact max pain significantly. For example, before the most recent week long rally, puts outnumbered calls at strike 38 and 39. Calls outnumbered puts at those prices after the rally. That late round of call buying really solidified 37 as THE target instead of strong possibility. If we head down sharply now, and lots of put buying ensues, that would mean one thing. If we head back down and there is more call buying that means another. Same thing if we head up, and people keep beting against a continued rally by buying puts. Unfortunately there is no way of knowing right now which direction we will take. About 2 weeks from expiry a more clear picture will form. Even if that picture forms, will we believe it? That is the hard part. Two weeks ago I was waiting for much the same thing Zeev was (-1000 tick counts, rising vix, something to denote fear, or even the silly naz gap to fill). Well none of these occurred and it was over 100 points into the rally when we step back and say doh! At 39 with a week left, I refused to believe that the rally could continue (I think I was in the minority on that one but Zeev called it as well)and bet in the direction of pain which was then down. I caught most of a two point QQQ move (with puts - but not enough of them) but missed the far bigger rally of 5-6 points. Not best. The problem is that one has to consider the possibility of a strong trend. If we were starting a full blown retest of the bottom, delta hedging would have kicked in and calls would have been toast, and max pain could have been tossed out the window as it should be in the middle of a continued strong trend. In retrospect, Once the rally started and continued for the second day, the safe course would have been to assume that we would keep rallying until we reached pain. That turn up was a huge miss on my part. A huge mistake. I felt very bad about this to be honest, but other more prominant posters here missed a big chunk of the move as well. I did not fight the uptrend (as I have done in the past) but stayed on the sidelines until it appeared that enough was enough (or in this case more than enough) and wacked it with puts. Right now, looking at April, one might say the QQQ's will finish at 36, but that could change and given the nature of that change, I do not see how to take advantage of that information at the current moment. I have half a notion to stay on the sidelines for 2-3 weeks and then bet against the current trend in favor of a trend that will move towards pain. If at any time Zeev or HAL issues "The Big Buy" signal, however, I will wait for confirmation and buy some QQQ calls. M