Options Max Pain Theory Explained & How People Trade It (just the basics). // trading calculator stocks calls puts expiration payne charts strategy maximum peg pegged pin pinned level david moadel
a very brief introduction to Max Payne so here we go if you are familiar with
options and you feel that large institutions are manipulating stock
prices then you might consider taking advantage of the Max Payne Theory the
Max Payne Theory claims that as option expiration approaches stock prices will
tend to get pushed toward the price at which the greatest number of options in
terms of dollar value will expire worthless in other words the theory
holds that when expiration approaches stock prices will gravitate toward the
price that will cause both call and put buyers the most pain since their options
would expire worthless at that Max Payne price thus Max Payne is the price at
which option holders would lose the most money and option writers or sellers
would profit the most this is generally going to be the strike price with the
greatest number of open contracts Max Payne is only a theory and can't be
relied on to work all of the time however the Max Payne theory is
supported by the fact that there are very large institutional options sellers
who may have the ability to manipulate stock prices thus it is possible that
they will push a stock price toward the max pain point so that their option
righting trades will benefit the most when expiration is near and a stock
price gravitates toward the max pain price some people will say that it is
being pegged or pinned it is difficult to prove whether Max Payne pinning is
real or coincidental but stock and option traders can still benefit from
being aware of Max Payne especially when the option expiration dates are near so
this example is from maximum pain calm and it shows the max pain for MU which
is micron stock as being 27 dollars and you know that's not necessarily the
price right now this is just when they made the chart all right so here are all
of the all the puts in red all the calls and green and right here where the most
options would expire worthless both calls and puts upon expiration
and by the way expiration is usually it's going to be a Friday although 4sp
why sometimes it's a Wednesday but we're usually referring to four o'clock p.m.
Eastern Time on Friday is when expiration generally occurs and this
effect the Max Payne effect might be even more powerful for monthly
expirations as opposed to only the weeklies okay so as we can see here
according to this website the Max Payne would be $27 the strike price of 27
where the greatest number of calls and puts in terms of dollar value would
expire worthless here's another example from maximum pain
maximum pain calm showing the max pain for Apple as being one hundred fifty
seven dollars and fifty cents for the strike price for this expiration cycle
for options all right right about there all right you've got the puts in read
the calls in green and right there that's the max pain
there is really no need to calculate Max Payne yourself I suppose you could do it
but since there are websites and apps that will do it for you all right now
for apps you could probably go to Google Play or you know Apple the App Store
wherever you like and you can do a search for that for a max pain
calculator I know of a couple websites where they will calculate it for free
right now at least I cannot guarantee it'll be free in the future but as of
this video one is maximum pain com there's a
website here and also option is tix.com all right so you can type these web
addresses into your browser or just type max pain calculator into a search engine
and you'll probably get there one way or another if you want to test the theory
out and please be careful with this all right yeah this is something you should
not do with large amounts of money it's best to paper tray paper trade any
theory first all right so do not put a lot of money into this if you're going
to test it out or if you're going to do it at all in fact it's you're better off
really paper trading it with just play money fake money at first you can make
adder but if you want to do this you can make a directional bet with small
amounts of stocks or options the idea is to bet that the stock price
when there is only a short time left until option expiration will tend to
move toward the max pain some traders will swear by this method
but you will want to do your own research before trying anything out for
yourself so the next time you see the price of a stock magically or
magnetically moving toward a round number in the final hour before option
expiration just remember the words Max Payne
I hope this was helpful and helpful for you and informative please give this
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can email me at any time my email address is David Modell at gmail.com
thank you so much for watching and listening and I'll talk to you again
soon