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

To: The Freep who wrote (60099)	5/1/2002 7:59:18 PM
From: mishedlo	Respond to of 99280

Freep there is no way to account for the anomolies. Just is. However, the bigger the open interest the fewer the likely anomolies. When looking at 80-100K plus open interest at a strike price it is reasonable (IMO) to assume 80% of them (or better IMO) are likely to be long options (sold to J6P or the public or a small hedge fund) as opposed to shorted by the public and owned by the MMs (or shorted by a small hedge fund and owned by a "bigger fish"). The bigger fish always controls, in absense of amazing news, is my theory. Now at 20K options, I guess. I ASSUME that those 20K options are long options. That is a leap of faith but a likely one. Anything less than 20K has been unreliable. That is why I like a minimum of 20K options before I assume max pain is reliable. Then I look at QQQ and decide if the market in general is likely to head up or down. If QQQ point one way and 20K+ options point the same way, I will take a chance and consider making that max pain play. I also look at reliability. QCOM has tracked pain very very poorly (perhaps someone shorting puts - that would skew it). If a stock with sufficient interest behaves incorrectly, then I exhibit caution on it the next month. I do note however that when QCOM was below pain suggesting a rally, the QQQ suggested a decline a portion of the time, this would make a QCOM rally more suspect. As for CSCO, it is a judgement. I would think a rally close to 15 would be called for, but with way more CALLs than puts at 15, then one would expect CSCO to die at 15. That happened yesterday and continued today (far bigger than I would have expected, as CSCO was totally anemic today). Now does CSCO rally here or not? Like I suggested, the answer depends on a guess. What is the true nature of those PUTs at 15? The number of PUT options on CSCO was the smallest # we have seen for months, so if this was the month they want to take that pig down (via delta hedging or because some are short), then this was the chance. Bear in mind, I believe the "powers that be" already know how CSCO will report. I could be wrong but I think it is likely. If they know CSCO will be good, the intent could be to just gap the pig up on the good news, run it up 1 point, and voilla CSCO is right at max pain. If the earnings suck, perhaps delta hedging is kicking in in advance. I always assume the SOBs know this sht in anvance. All of this is why Max Pain is an art and not a science (or perhaps a bit of both). BTW. When I see volume like I see today on SUNW, that is a sure sign of "bad news" that was not expected, so the powers that be do not always know. What I can not figure out is why SUNW CEO quitting was such bad news. Obviously the company was doing horsesht with him in charge, perhaps the best thing is to get rid of the loser and bring in someone else. Of course that will take zillions of options and more shareholder dillution to attract "top talent" to that sinking ship, so perhaps that is what the market did not like. M