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Difference Between Pinning and OI/Max Pain

I do these videos unscripted, so forgive me if they go astray. I forgot to mention. Fridays volume was only 6M shares. You can bet 80% of that volume was related to option hedges coming off and going on as people open and closed positions.

 

Just noticed. That chart I showed, there was no Monday trading, that 1st day was a Friday. Awe, what are you going to do. Same premise applies :o)

  • Shooter100k

    I skimmed through your site, but I didn’t find an answer to this question: What day of the week do you look at the max pain? If you wait until Friday it doesn’t help to do a lot of predicting, does it?

    Also, let me add that I think you’re theory is interesting, but incorrect. Apple trades 5 to 15 million shares per day. That’s $2 to $6 billion dollars per day. The options values you are talking about is only a few million dollars worth. The option money is simply not large enough to push the stock around in a meaningful way with any consistency.

    I think you’re theory is coincidental only. Meaning that generally, due to option pricing, the most calls are bought above the current price and the most puts are bought below the current price. Therefore the options expiration tends to fall between the largest call and put OI.

    • I look at the OI range when it becomes large enough to have strength to hold the stock. More the better. Usually around 8K+. This usually takes place on Tuesday pre market or Wednesday Premarket. Example last week the highest OI was on the $410 calls all week and $395 was highest put OI on Sunday night, then Monday night switched to $400 and stayed there.

      Around $6M worth of call premium expired completely worthless on 2 strikes alone this week. I’d take a piece of that share for 4 days work.

      I’ll also take coincidental. Coincidental proves high probability.

      • Mwong00

        On the week of Dec 12 – Dec 16, the max OI for the 395 Call Strike was 33,801, and the max OI on the 390 Put Strike was 12,461. On Tues, Weds, Thursday and Friday Max OI shifted upwards to 400 for the Call Strike and 390 for the Put Strike. Yet, by Friday, it closed at 378.

        Of course Volume increased on the 380 Put strike to 40,877 on Friday, but, by then it would have been too late to profit from it.

        Am I missing something here?

        • On Dec12th (Monday the highest put OI was 385 strike (31K) and call was 33K on $400 strike. Friday it was the same strike for call but $380 was highest for put. So if on Monday you used the 98% range it used the $380 strike. AAPL closed $381.xx. It finished in the 98% range from Monday.

          If you’re talking Friday’s only as far as pinning. That’s a different thing all together. Not related to the OI range. Pinning can happen on any strike. Max OI range cannot.

          Also, if your ever concerned of the strikes changing you can do 1 of 2 things. Only use 1 side, whichever side isn’t going to move or moves in your favor or #2, Use them as daily (short term) buy sell points will remedy that concern all together.

  • Very interesting. You say that pinning is a result of the option volume, which is closing out option contracts for the week. You then say max pain is not the result of contracts closing, so I’m going to assume you mean the action is a result in the option writer hedge re-balancing in the stock. Is that correct?

    You define max pain as anywhere between the highest put OI and highest call OI. However, you can take max pain further and determine the cash value of all options at each strike, and see which strike has the least cash value. Here is an example of the cash value calculation http://www.maximum-pain.com Rather than a range, the cash value max pain points to a single strike. Given that calculation, how does max pain differ from pinning? Is it still a matter of the underlying action (contracts closing versus hedge rebalancing)? Or, do the two become more alike in this scenario?

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