Don't you think with an option expiration every week on the indexes that it dilutes the max pain theory on the "regular" expiration?
Max pain
- Thread starter droid17
- Start date
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.
-----
I think you're very confused about what sle is saying...
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
Another wanker.
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.
Quote from sle:
I am a big seller of the whole max pain concept. Mainly because it is meaningless unless you know what strikes are delta hedged and what strikes are kept naked. Also, it would only matter if the open interest in a given strike is meaningfully larger then ADV.
There was a concept of "put bombers" in the hedge fund community a few years ago (before the Max Pain of 2008). A fund would identify a lowish liquidity stock with high implied vol and sell a lot of puts to the dealers. Since the dealer would be forced to monetize the vol and trade a large percent of ADV, realized vol would fall significantly. You could only guess what happend to these people in 08...
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.