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OpEx Max Pain
We closed at OpEx max pain. If SPY moves sideways right into Friday 4pm, the market will prove to be a vicious sadist, to which masochistic traders return day after day, begging for more. Of course, one assumes the Chinese bubble doesn't implode first.
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there's the red and blue swan again...slightly defeathered
take all options expiring for that period...calculate net p/l for each expiration price for the underlying based on the open interest in each strike. Sum the gains/losses for each possible end price, select minima on the curve - result is max pain for the day, and repeat for every day. the price where least market participants make money
The price where the most participants on the other side of the market participants make money.
Beware these are only exchange traded options. There are huge amount of options outstanding in OTC trades: say a hedge fund calls up JPM and says give me some call option on 100M on some equity.
Although it's my hunch that larger price stocks would be more subject to max-pain effect, but I have to test that.
Are you talking about max pains for indexes or individual stocks?
I wish it were that simple. You have options for individual stocks and options for indexes. The indexes are influenced by the stock prices.
You can't make all the stocks or indexes reach max pain at the same time. It is impossible.
Wow, I haven't felt this incompetent since grade school... you explained how to calculate it and I still have no clue... luckily for us you do! Thanks Tyler!
This may be a particularly strong gravity like force this exp as it seems like the big houses having been selling volatility hard for the last few months.
We are repeating (in my opinion, which I have not brought down from Mt. Sinai on stone tablets) the pattern of early July, under the gracious sponsorship of POMO.
One more leg before the end of September.
This guy says the HFT helps raise the market but doesn't provide support for when it crashes. So they basically play a speed game handing off the garbage to live people as they can.
http://www.youtube.com/watch?v=V4cRYI2x60Q&eurl=http%3A%2F%2Fwww.contrar...
Why will people continue to play in a taxed market when those taxes can get out of control so easily. These markets will die and people will buy and sell in other ways.
everything is optimism because of some stuff. we are waiting for a strong opening and the shangai composite is up and the markets will be forever manipulated
No. For the HFT scam to work it will only work on optomism. It taxes optomism and doesn't get paid loses money on pessimism. So you will see everything turn into sunshine and smoke blowing factories because it can only tax optimism. It'll rebalance by having blitzcriegs of horrible news plummeting the market which then get sugar coated over as it tries to go back to an optomism cycle. Of course that won't happen the world will just create alternate markets and ignore it.
The strong openings are just the HFT engines bouncing things up slowly.
A song to sing to the market.
http://www.youtube.com/watch?v=V2KZ2PWwQyQ&feature=related
'It taxes optomism ...'
nice way putting it.
HFC is some kind of scalping. It only takes on crash to wipe them all out.
getting fronrunned
Tax surpluses is stealing from tax payers. Time to get that money back and force them to lower taxes.
good articles; good articles 4 slow news day ..http://www..
hat tip: finance news & finance opinions
Can Max pain tell you much about future months and future direction of markets? or is it just the close in month.
Thanks,
Peter (Seattle)
ZHers ... book recommendation ... if you truly wish to understand the final goal of our current policy and the historical actions undertaken by world governments i recommend you read this shot essay by Immanuel Kant called " Perpetual Peace " . In it you will find a blueprint for political and economical unification we are witnessing for the past 60 yrs. It was written in the end of 18th century and ALL what we experience know draws direct origins from it. If you want to blame someone, blame Kant. http://www.scribd.com/doc/17430046/kant-perpetual-peace-a-philosophical-essay
As a young college student, I loved Kant. Twenty years later and I hate the guy. The Germans gave us the greatest scientists and the worst philosophers.
i for one only liked his epistemology and theory of law, and i give him credit for breaking Descartian dualism and Bacons a posteriori epistemology. And with doing that he has set the ground for mathematical advancement, formation of modern logic and scientific methods. I have never liked his metaphysics, nor his paradigm as how should philosophy behave. And his political ideas are pure utopia, but unfortunately also put in practice by western politics. And they will fail, and fail terribly, because he dismissed dialectics based on his premise that the concept is somewhat empirical, and thus not independent from interpretation, and thus not knowledge; which is patently false; but to make a long post short; it would be good to read the above mentioned essay to get a glimpse from where major political ideas of 20th and 21st century have come from.
Talk about hijacking a thread down a strange rathole.
Wow, look at the big brain on Cheeky. ( I keed, I keed )
Mental Masturbation at it's finest!
Bravo!
Settle down. Just because a series of comments goes sideways and contains subjects which are outside of the box shouldn't lead to a knee-jerk put-down. The subject may not be interesting for you... in that case move on and save the cheap shots for CNBC.
Some of Tyler's posts are less incomprehensible to me, given that I have no knowledge of the esoteric corners of the derivatives market.
“Ok, I don’t like to gear my material to the audience but I’d like to make an exception because I was told that there is a convention of plumbers in San Francisco this week - I understand about 30 of them came down to the show tonight - so before I came out I worked-up a joke especially for the plumbers. Those of you who aren’t plumbers probably won’t get this and won’t think it’s funny, but I think those of you who are plumbers will really enjoy this…
This lawn supervisor was out on a sprinkler maintenance job and he started working on a Findlay sprinkler head with a Langstrom 7″ gangly wrench. Just then, this little apprentice leaned over and said, “You can’t work on a Findlay sprinkler head with a Langstrom 7″ wrench.” Well this infuriated the supervisor, so he went and got Volume 14 of the Kinsley manual, and he reads to him and says, “The Langstrom 7″ wrench can be used with the Findlay sprocket.” Just then, the little apprentice leaned over and said, “It says sprocket not socket!”
As for myself, Kant's gift to the world was his transcendental aesthetic. Crudely stated, we live in a material reality, but we place everything in relation to time and space, which are mental constructs. Our "real world" doesn't exist without the transcendental/abstractions time and space. Of course, like Descarte, he then goes on to use this as a basis to try and rationalize the existence of God, and it all falls apart. (Cheeky, if you ever read this and don't already know, his family was originally from Scotland. Germany's greatest philosopher was a Scot!) And yes, politically it's hard for me to take him seriously because he lived so intensely in his mind, and was very much disconnected from everyday experience. Blah, blah, blah, I'm even starting to bore myself. Cheers
Hold on a second there buddy. Let's not get carried away.
Kant is the best...sorry
Critique of Pure Reason influenced Einstein.
not only him, but he is, in my humble opinion, the main contributor to scientific method and advancement in science,and thus society. He was good, but i strongly oppose his anti-dialectical philosophy of politics.
'He was good'..he's also dead,can't have been that good.
http://www.alaindebotton.com/
you are alain de botton and I claim my $5
LOL. No, I'm not him. And this is the first time i have ever heard about him.
Sry Rand was the best and by extension, Kant was the worst.
-1
Oh, where the fuck is the minus Infinity symbol on my keyboard?
Rand?
Jeez, this place is going downhill in a hury.
Heard you on Max Kieser's site. It's nice to put a voice to the face as it were.
Tyler -- in the interests of anonymity, did you disguise your voice?
I thought I detected a slight European accent in there, or at least second-generation yank.
Rene Descartes was a drunken fart
'I drink, therefore I am.'
Wasn't nothin' Nietzsche couldn't teach ya 'bout the raising of the wrist...
Ah, but September max pain for SPY comes in at $90. All those LEAPs ya know. If spoos drop 10% by sept expiration, I'll really believe the max pain theory.
TD: " the price where least market participants make money"
To be pedantic, its the price where option buyers as a whole make the least money, and the writers get max profit.
The stay-at-home-on-the-couch sectors are the only ones with pricing power. A sure sign that the recession is in full swing!
Tax surpluses is stealing from tax payers. Time to get that money back and force them to lower taxes.
good articles; good articles 4 slow news day ..http://www..
hat tip: finance news & finance opinions
Open interest means someone is long and someone is short. In general, there may be one large player who is long/short the strike, and many smaller players who took the opposite side of the trade. The large player has the capital to push the market a little. Unfortunately, there is no way to know whether the 'big guy' is long or short the options. I've seen it go both ways.
I got this from Taleb this morning and wanted to share with you....;-)
Title: Cameron dare not copy Obama's disastrous economic policiesShould he come to power, the Conservative leader must avoid the calamitous mistakes of the American president
----------------------------------------------------------------------------------
Dear David (if I may),
You and your party may be the only hope we have for a resilient society insulated from negative Black Swans and in which everyone has the opportunity to benefit from positive Black Swans. For I despair of the Obama administration's ability to fix this financial crisis and prevent future ones. I am appalled by the dangers it has been creating and its takeover by the same economic establishment responsible for this crisis.
What is a Black Swan? It is a low-probability, high-impact event that, because of its rarity and the instability of the environment, cannot be scientifically evaluated in terms of risk and return. Although Black Swans are rarely predicted, they are retrospectively seen as having been anticipated, which makes us overestimate our abilities to see them coming. Black Swans can emerge as a result of our intellectual arrogance and our ignorance of our limitations. Some elements of the future are simply beyond our grasp.
Much of history has been dominated by Black Swans, both positive and negative. These deviations are the main reason economic theories and forecasts do not work, since the exceptional and unforeseen high-impact event plays a large role in economic life.
We live in an increasingly complex system and complexity causes Black Swans. How? The more interdependent we become, the harder it is to trace the cause of an event and the tougher to forecast accurately, meaning the traditional tools of economics will fail us. And since the spread of the internet, rumours go round the world in minutes. Consider the run on Icelandic banks. It took place at BlackBerry speed. So the economic variables, such as sales, commodity prices, unemployment or GDP growth, are subject to ever more extreme variations. The over-efficiency of the systems means things run smoothly, but are subject to rare but violent blow-ups.
David, you must counter this complexity by lowering indebtedness. We have known since Babylonian times that debt is treacherous and allows no room for mistakes: felix qui nihil debet goes the Roman proverb ("happy is he who owes nothing"). The combination of debt levels swollen from two decades of over-confidence with modern finance's complex derivatives has been disastrous.
Be careful, too, of the so-called science of economics. Economists have been no better in their predictions than cab drivers. We have an "expert" problem, in which the expert provides you with misplaced confidence, but no information. Because we think, correctly, that the dermatologist, the baker, the chemist are true experts (they know more about their respective subjects than the rest of us), we swallow the canard that the economists at the International Monetary Fund, the World Bank, the Bank of England and the US Federal Reserve are also experts, without checking their record. This reliance on faux experts is, for the most part, what got us here. Now it is continuing with the build-up of government deficit and an increased reliance on flimsy forecasts by the Obama administration.
This problem with experts was particularly acute when it came to the "risk models" on which bankers built those positions that turned sour. So it is that you are coming under pressure to provide more regulation. Alas, the need for more regulation is a myth. I have been fighting risk models both as a Wall Street trader and as a professor and my worst nightmares were the results of regulators. It was they who promoted the reliance on ratings by credit agencies. The "value-at-risk" models regulators promoted made us take more risks.
If we are to have regulators, we need them to operate along conservative lines and conserve the rich knowledge and understanding of risk transmitted through generations of practice, of trial and error. We replaced the heuristics of the elders with arrogant (and incompetent) beliefs, breaking, in the name of science, the chain of knowledge. Old, conservative bankers and traders have been replaced by keen young mathematical analysts, yet anyone who listened to a grandmother who survived the Depression would have been warned against debt and been better prepared than Ben Bernanke and Alan Greenspan, respectively chairman and former chairman of America's Federal Reserve.
The solution is obvious: build an economy that increases the role of well-tested traditions. Ban financial derivatives that require advanced mathematics rather than trial and error. Look at mother nature. There is a complex system built around sound principles that has insured both evolution and survival. It does not let anything get too big to fail. It breaks things early. I don't understand why people who stand against tampering with nature accept tampering with the economy that would have organically grown too. Work on building a "robust" society, capable of withstanding errors, in which the role of finance (hence debt) would be minimal. We want a society in which people can make mistakes without risk of total collapse. Silicon Valley offers a good example, where people have the chance to fail fast (and repeatedly).
The best blueprint is the very opposite of the Obama administration's economic policies (its foreign policy is commendable). It has been administering pain-killers without addressing the cause of disease. Obama is strengthening those who do the wrong thing. Take the "cash for clunkers" programme. It is a handout to those who bought the wrong – uneconomic – car. He is penalising people who did not make a mistake. The same applies to other "rescues". By raising taxes after the crisis, the administration is hampering evolution. Those who do well in difficult times end up paying more tax and those who lost money in the crisis pay less. The rich who got us here are being rescued by regular Joes and being subsidised by the tax system.
Obama is giving the large institutions that failed us, like the IMF and the World Bank, even more powers. He is increasingly dependent on the visionary expert who failed us and does not understand the properties of complex systems and stifling long traditions of wisdom in understanding risk. Just consider the players: Larry Summers, director of the National Economic Council (who, among other things, made both Harvard University and the banking system more fragile), Bernanke (who increased reliance on the error-prone "models") and Tim Geithner, secretary of the US Treasury (who failed to understand that property prices can take extreme deviations).
I am particularly depressed because, having been disappointed by George W Bush, I had high hopes for Obama. David, spare us from such hubris.
Yours, Nassim
Nassim Nicholas Taleb, author of The Black Swan, is a professor of risk engineering at New York University.
Dear TD
I love the humor, wit, sarcasm, etc I find on this site. But after reading ZH for several months I am still often confused by the jargon and technical language some of the posters use.
I am a highly educated professional, but not in the world of banking and finance.
Could we have a "TD For Dummies" section or maybe a little more explanation for us "Newbies".
May I suggest you download ZH to your KindleDX and use the cursor to highlight technical stuff. It will open a window with explanation from Oxford...;-)
Here's a spreadsheet. To use going forward, if you use Thinkorswim as your broker, go to the Trade tab, type in SPY, and export the data. Open that data in Excel and paste it over today's data.
http://www.scribd.com/doc/18759215/SPY-OpEx-Max-Pain
Scribd only allows you to download it as txt or pdf. Could you post an xls version?
bah, looks like I missed that shortcoming. website posted below looks to do the trick.
Those who predict any given major event/crisis are generally lucky, in that they happened to be looking in the right place
Tax surpluses is stealing from tax payers. Time to get that money back and force them to lower taxes.
good articles; good articles 4 slow news day ..http://www..
hat tip: finance news & finance opinions
TD, the number must be posted somewhere. Or hey what, post it for SPY, DIA, RUT and QQQQ at the top of your web page.
Here you go folks
http://www.optionpain.com/MaxPain/Max-Pain.php
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