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Strategies & Market Trends : Dave Gore's Trades That Make Sense -- Ignore unavailable to you. Want to Upgrade?

To: Tim Davies who wrote (12659)	9/21/2002 12:29:22 PM
From: mishedlo	Read Replies (1) \| Respond to of 16631

Tim I have done hundreds of posts on Max Pain. Sigh. But it is a favorite subject. The 4 reliable stocks are In Order QQQ INTC CSCO MSFT But if you figure out those, you can usually figure out the market. NYSE stocks do not seem as reliable. IBM missed pretty badly (at the close) but there was also bad news. Yet, by MY definition of max pain (IBM was a win)! My definition says that Max pain will be touched during expiry week not closed at. The reason this works better is that all the time premium has been sucked out of the options at that point and the powers that be can take stocks up down or wherever they want by delta hedging. If news kicks in during expiry week the results can be dramatic. News always overrides. So my theory calls IBM a success. That is what one should play for. IBM was above pain, and had one played that on Monday one would have been quite pleased with the result. I prefer to look at Open Interest on www.cboe.com. One can see huge buildups of puts and calls and know wht the bounds are. There was not a huge number of puts below 70. Perfect time to take it down hard on bad news. JPM had huge puts at 20 (20K at at that strike alone). It stalled right there. Look at AMZN. 12,000 calls at strike 15. At the first sign of bad news that was destined to drop like a rock. They held that news up until mid-day Friday. BTW 12,000 is a decent number but not on my reliability threshold. I prefer to see 20K contracts a single strike before there is strong correlation. Best is when there are hundreds of thousands of contracts (on one side but not the other). This type of play can set a ceiling or floor. You do not know where a stock is headed, you just know where it is not. This behavior has hppened many times with MSFT. Huge numbers of calls on MSFT without a lot of put interest (MSFT usually comes back to earth). Msft is very jumpy both ways however and that can make MSFT unnerving. When it fell to 46+ on Thursday I bought a few calls and tossed them later that day. Those calls I bought increased 120% in a day but the next day were worthless. Safest action is to trade in the direction of pain but 1-2 months or more out. Strike 75 ITM puts on IBM OCT would have been a huge success. QQQ has TOUCHED (not hit) Max pain every month since Dec except June and now Sept. INTC has failed twice (one con that horrible earnings news and I do not remember the other time). CSCO has failed to touch pain twice. MSFT is more eratic missing 3 times I think but many times you can see them zero in on an exact number. I posed on Friday MSFT was gonna close at 47.49 (and it closed at 47.48). MSFT was bout .50 from there at the time of my post and one could have actually played both a rally and a decline if one wanted to play for .50 each way. Also Although I was correct I did not have to be and playing for .50 does not seem to make a lot of sense but Max Pain served as the guide. Delta hedging took down the QQQ's when 23 area failed to hold. They still managed to prop up INTC CSCO and MSFT very very close to pain. I almost forgot to mention. Panic overrules Pain as well. Either way. In panic, delta hedging will eggagerate to an extreme degree, the move away from max pain. Max Pain failed miserably during Aug/Sept Oct/Nov last year Firts down then up. Does this make any sense? M