Option, max, pain, calculator free StockManiacs.
It doesnt matter whether youre buying a call option or a put option - due to time decay, youre probably going to lose money. Key takeaways from this chapter Option Pain theory assumes that the option writers tend to make more money consistently compared to option buyers. The Option Pain theory does just this identify the price at which the market is likely to expire considering least amount of pain is caused to option writers. Ive become somewhat interested in the Max (Option) Pain Theory recently. . What is Open Interest? In order for an Option buyer to profit, the option needs to expire ITM (in the money). I wont disclose the actual logic for how they do this - you can get that from the Internet or from another Quora post. What are Options (Calls and Puts). From my limited analysis, the theory is somewhat useful for certain stocks. . As far as I know there are no academic/scholastic papers on it, which makes one wonder why the academia has ignored this concept. In order to get to that, you need to understand an important fact. However if you come from a programming background, you can easily back test this logic and share the results with the rest of community here. 13.5 The Put Call Ratio The Put Call Ratio is a fairly simple ratio to calculate.
This specific price, calculated based on all outstanding options in the markets, is called Option Pain. Ill be honest; Ive been in both camps! Max Pain is a rather controversial theory. If you are not sure what this means, Id suggest you read this chapter on standard deviation and distribution of returns. The strike at which the option writers would experience least amount of loss is the strike at which the stock/index likely to expire. Max Pain is an advanced concept so unless you know (1) and (2 you wont understand Max Pain. We need to understand the basic assumptions of it before talking about what. This causes the max pain to Options buyers and the max profit for Options sellers.
Find stock option data for any stock and expiration date.
I manually did the calculations in Excel for SPY.