Max pain zone at expiration

Discussion in 'Options' started by a529612, Apr 18, 2006.

  1. How do you figure out where the pit boss would like the underlying to go at expiration so there will be a maximum # of contracts going worthless?
     
  2. Get a magic eight ball... or talk to Iceman. He'll give you three or four of the nearest strikes, and voila!

    It's absolutely worthless in this market. But if you fancy wasting your time:

    http://www.ez-pnf.com/ezpopt_1.htm
     
  3. Lucrum

    Lucrum

    I agree with riskarb. I did a study of QQQQ
    and max pain about 1 1/2 years ago.

    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
     
  4. novel20

    novel20

    "How do you figure out where the pit boss would like the underlying to go at expiration so there will be a maximum # of contracts going worthless?"

    Depends on which casino you are at, but based on what you asked, you are probably one of those contracts. :D