Replies to post #97066 on Zeev's Turnips Patch-No Politics (ZEEV)

[Joe Stocks]

>>I did a study over two years of individual issues with high open option interest for both large cap and mid cap issues. It was a paired study with one issue above max pain or option parity value and one below for the two weeks before expiration. There was a statistically significant (95% confidence) tendency for the prices to move together.<<

Dave, Wouldn't that argue for my point. If I understand you correctly you are saying one moved away from max pain as one moved towards it. I would say that had more to do with market direction than some kind of strategy for one the make the best out of a max pain strike point. I',m saying that the option itself reflects the market and max pain will move with it.

Let's face it, at any given point there are those that think an issue will go higher and those that have expectations of it going lower. In theory, max pain would be the point where the most have the least to gain. That should be near the market price in a trending or sideways market. Therefor it would only be normal for max pain to have a fair amount of hits, especially on something like QQQ. However, my point is that an issue will not move due to max pain but that max pain just reflects a snapshot of market sentiment. I have often heard some here say that max pain is this and this issue should be moving towards it. What I'm saying is that max pain has no value in determining what direction a stock will trade. For all we know "real" max pain could be a different number completely when different trading strategies (hedges) are taken into account. At best I would say that Max pain may be closer to an indicator of oversold or overbought condition in a braod definition.

Joe