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augieboo

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augieboo

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Re: None

Tuesday, 07/09/2002 12:22:05 AM

Tuesday, July 09, 2002 12:22:05 AM

Post# of 241
Mish Explains Max Pain

Max Pain is the point at which most options expire worthless.
It has been extremely accurate every month except last month about predicting stock price mobvements on the QQQ during options expiry week.

OE = Options Expiration
Ramp is the fact that the tendency has been for a stock market drop most of the month but a rise to Max Pain on the QQQ in the lsst 7-10 days before expiry.

DOA = Dead On Arrival
Max Pain on the QQQ has been sinking this month and has fallen from 28 to 26-27 tossup. There are more QQQ calls at strikes 25 26 and 27 than puts. Last month we saw more calls than puts at 12 consecutive strikes and the bottom fell out of the market.

If people keep loading up on QQQ calls then I believe we can keep dropping.

Here is a link to maximum pain sight
http://www.iqauto.com/cgi-bin/pain.pl

The theory is that all stocks drift towards max pain.
I disagree
QQQ is the #1 indicator.
INTC CSCO MSFT are also significant predictors of rallies or declines but not nearly as reliable as QQQ. INTC died last month on horrible news. But INTC hit max pain every month this year but last month, (which is a damn good track record). Attempting to apply max pain to thinly optioned stocks like ELX or QLGC etc is a waste of time.

I do frequent post on Max Pain, and call options are likely to stop this rally at QQQ 27 if it can even get there. IMO the buildup of call options at QQQ 25-27 is potentially ominous.

A frequent happening this year has bee a runup to or thru max pain during expiry week then a sharp drop later in the week or the following week. I expect this expiry to be more of the same.

Here is a link
http://www.iqauto.com/cgi-bin/pain.pl

BTW - I prefer to look at option chains on WWW.CBOE.COM rather than use the tool. Easier to see the buildup of calls or puts that way. Some people here like to refer to PC ratios but I believe they are more or less useless since the sale of put or the buy of a put (close or open) both have the same affect on Put Call ratio although both are quite different. Open Interest CURRENT MONTH is what I believe matters and Put call ratios do not tell you that. Shorting Puts is bullish, buying puts is bearish yet both affect Put Call ratio the same way. Trading in and out of Puts intraday also affects the Put Call ratio but is meaningless to open interest as well as Max Pain.

http://www.investorshub.com/boards/replies.asp?msg=407359




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