Short Term Trading Member Forum

[TL Trader]

I did a study on Max Pain recently.

Using BCA software's data and going back 38 months I took the difference between the close of the QQQ for each OEX and Max Pain for that month and came up with the following statistics.

Differece between OEX Close and max pain of the QQQ

Average + 0.07
Median +0.14

Looking at those two numbers alone gives the impression max pain is worth watching however the maximum/minimum was
+ 3.87 and -6.31
The standard deviation was 1.97
The average deviation was 1.38
and the variance was 3.88

In short you may be able to come out ahead if your selling OTM options on either side of max pain over a long period of time but as far as using max pain as an aid for directional trades it's all but worthless.

FWIW someone else on another forum did a similar study going back even farther than I did and came to the same conclusion.