Options Expriation Day – Max Pain
I have often discussed how a stock will tent to run to a strike price at expiration. There are times when it will run to a strike price to take out the positions that would benefit from a price outside of that. When owning/trading options, the goal is generally not to exercise the contract, it is to sell the contract at a gain.
Phil @ PhilStockWorld.com is a heavy options player. You will learn a ton by reading his blog/site. The excerpt below is from Phil’s morning newsletter.
That’s right, we often talk about various market scams but there is no bigger scam in the world than options expiration day when all the stocks are herded back to prices that benefit the largest number of SELLERS of opions while the buyers of options can only stare in shock as momentum shifts and trendlines break and stock after stock magically settles into a value that wipes out the most possible premium. There is something in options called the “Max Pain Theory” that says that stocks will always settle at the strike where the most puts and calls expire worthless but I think that’s a self-fulfilling prophesy as options activity tends to center around the strike as it moves so of course the strike is surrounded by the most options.
via Options Expriation Day – Back Where We Started! | Phil’s Stock World.
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