Options, maximum pain chart

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Options, maximum pain chart

NB Finance & Technical Analysis, 2009-11-19

Technical Analysis of the markets

Technical Analysis of the markets

Technical Analysis

Click images to enlarge.

Since it's options expiration week, here's the
SPY max pain chart. Max pain is the
theoretical price that would cause most of
the options for a given

Since it's options expiration week, here's the SPY max pain chart. CBOE
options max pain is the theoretical price that would cause most of the
options for a given month to expire worthless. CBOE options max pain
chart is at 108 for SPY, which is currently at 111. If prices were to
gravitate toward max pain numbers then it implies the market needs
some pullback by Friday. From what I've seen, Month to month this is hit
or miss, but maybe this month it works out.

What is CBOE option max pain?

In the option market, wealth transfer between option buyers and sellers
is a zero-sum game. On option expiration days, the underlying stock
price often moves toward a point that brings maximum loss to option
buyers. This specific price, calculated based on all outstanding options in
the market, is called CBOE option max pain. Option Pain is a proxy for
the stock price manipulation target by the option selling group.

How Should I Read the Option Total Chart?

Option Pain point is represented by the lowest bar in the chart. At this
price, all the options in the market have the smallest dollar value.

How Should I Read the Call and Put Chart?

This chart plots the total value of calls (green) and puts (pink)
separately. At a specific price point, if the call value is greater than the
put value, the stock price may be manipulated below the strike price,
making all call options worthless. If the put value is larger than the call
value, the stock price may stop above the strike and make the put
options worthless.

Why Does Optionpain.com Have One Chart WITH DATA From
Yahoo! and Another from CBOE?

Best effort to make sure the calculations are accurate. Obtained the
data from two different sources and our accuracy is verified by having
the identical results from two independent calculations.

Does Option Pain Theory Really Work?

It has been observed over and over again that, near option expiration,
option buyers suffer significant losses. According to a New York Times
article, it is likely that option sellers, including firm proprietary traders,
"manipulate stock prices by selling large numbers of shares whose prices
they wanted to keep from rising and by buying other shares whose
prices they wanted to support."

What Should I Do if I Hold In-The-Money Options Near Expiration?

You may want to sell the in-the-money option, call or put, one week
before the final option expiration Friday. If you hold these options to the
last moment, very likely you will see your options become worthless.

target="new">Option Pain



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