vix at 66 means 66% up or down/year, which equates to about 66/root12= 19% up or down in the next month. that's what options are pricing in at least.
Thanks NoProblem. I used to use another website, but they stopped updating their data over a year ago.
Thank you so much for the suggestion of Options Oracle and the website provided. Both seem very useful.
Yeah, Iqauto was the one everyone used to use - but looks like that one is gone now. Any way, here's an explanation I bookmarked during the last bear - back in 2002: Hope it helps. Steve ***** ***** Max Pain is more than a theory. Max pain has worked every month but one since last Dec. February is inconclusive (very close) and June failed (the lone failure). The problem is people misapply how it works in practice to the pure theory. Theory is that stocks close at Max Pain. Practice is that stocks TOUCH max pain sometime during expiry week and they may or may not close there. If you think they should close there (as theory suggests, then Max Pain is more often wrong than right). It took me a long time to figure this out. There is often a reversal during max pain week where stocks rally to max pain and reverse (head back down and close below max pain). This happened 1/2 the time. Twice since Nov stocks rallied thru max pain and kept going (May and August). There is a reason for this, called delta hedging but will pass on the explanation at this time. KEY #1 for max pain: Figure for it to hit NOT to stay there. Key #2 is what to play. RMBS EXPE OVER CREE and other such stuff do NOT have enough options to matter. Bios often act willy nilly to what the market does and if you attemt to bank on Max Pain on Bios or RMBS you will be disappointed. In order the stocks that track Max Pain the Best are: QQQ INTC CSCO MSFT Guess what? Figure out where those are going and you likley figure out where YOUR STOCK is headed (with the possible exception of bios and garbage fiber). Key #3 is timing. Max Pain changes every day. It falls or rises DRAMATICALLY sometimes as it did in June. If you are early on your play you can be right but crushed. Best plays are about 7-10 trading days in front of expiry (preferably with a huge block of puts ITM or calls ITM) just begging to be taken out. Then and only then do you hop on in the direction of the move. June gave no confirmation long. Key #4 is don't be greedy. If you make a play based soley on max pain and it hits. Take the damn profit and run. Remember the reversal. If it happens on a gap down you can lose a ton of profits in a hurry. Key #5: Dont play max pain with front month options. If you do that and everyone does that max pain changes (against you). Play by shorting or going long, or options at least 2 months out.
Another excellent contribution, NP!! I learned some things from that analysis. Have you kept a record of how Max Pain has worked this year? Unfortunately, there's no way to look back at performance. I'm especially wondering how it did last month. Thanks!
Yeah, Mish is quite the guy! - he keeps a blog - just type the word Mish into Google, he's the 1st one. He is totally awesome! I do not follow max pain any longer so I don't know and could care less where max pain is, was or will be. But I can tell ya that, per Mish's criteria, max pain still works more often than not but trying to time it is not worth it to me. Add it to your tool box and use it for what it's worth. Steve
i am not an option guy, so i may be talking out of my arse. but numerical value of vix being equal to the expected % change in a year does not make sense to me. historically there were time vix was above 100. since stocks can't drop >100%, vix should never go to 100.
yes, but when there is panic, i don't think it is because people expect stocks to go up >100%. for example during 1987 crash, the stocks maybe dropped 20-30%. why would anybody expect them to shoot up 100% at that point? but i guess it was a possible outcome (not a likely one but possible). if $100 stock drops 30%, and then gains 100% it will only be $140. this makes it 40%/yr gain PRE-CRASH, which is possible. i think i understand it now.