Don't you think with an option expiration every week on the indexes that it dilutes the max pain theory on the "regular" expiration?
I'm not surprised that there is very little you can offer. You "max pain" guys deliver the same stuff over and over - Lots of theory, but no results. -----
This is so odd, I am not even sure how to react . You know, "a seller of X " anything means you don't like it and "a buyer of X" means that you like it a lot. For example, if I say that I am a buyer of Aruba, it does not mean that I am going to purchase the island. Similarly, if I say that I am a seller of Jessica Alba, it does not mean I am going to sell her short tomorrow (short selling her it would mean I would have to first find a way to borrow her overnight first). I was, actually (if you re-read my post carefully) arguing against the whole idea of Max Pain. Long time ago I was looking through all sorts of local strike effects and, while there were some other interesting things, nothing along the lines of Max Pain effect showed up with any level of statistical significance. I think people who have convinced themselves that this works have been unwitting sellers of gamma. It's a great strategy that works well until it does not, just like "put bombing" that I've described
if you don't like it then don't use it. that's all one can say. every trader has his own tools... e.g. i do not believe in quite a few technical indicators... btw i do not use option pain for trading gamma at all. i use it mainly for trading delta in stocks i know inside-out...
In numerical fields (e.g. engineering, finance etc) here is reality and there is illusion. You can say it "well, you don't believe it, so don't use it" about everything, for example I know people who use lunar cycles for their trading. Out of curiosity, have you verified for yourself using whatever statistical tools you like that it's a viable indicator? because it could you be your brain (which knows these stocks pretty well) playing tricks on you.
I agree. The max pain charts only make sense if you assume all the options are unhedged, which is nonsense. A market maker doesn't necessarily lose money on a short ITM option if he hedged it properly.
True, though we are starting to deviate from the whole max pain thing. I think (never done it) that in some assets if you keep track of all institutional purchases (given that most bookies will give you a spam of all trades they are doing, in some sh*t form like "grnH86/88 cs +paper") you could probably have a heat-map of all MM long/MM short positions. If you know of some strike that MMs are very long, you might want to sell these strikes in hope that their delta hedging would squash the realized vol. Similarly, MM hedging a large short position would amplify the realized vol.
I agree that the very act of hedging by option market makers feeds back into stock prices in various ways, and an astute trader may even be able to profit from this. But I think it will be a lot trickier than the max pain analysis.