Option writing can be done near expiry based on this theory, provided other technical indicators also favor the trade. Traders can utilize this concept to their advantage. Options Max Pain Theory suggests, “On option expiration day, the underlying stock price often moves toward a point that brings maximum loss to option buyers.” How can a trader benefit from “Max Pain Theory”? The loss incurred by options buyers is also termed as “Options Max Pain” for our discussion. Since most options buyers lose money in options trading, the price of the underlying stock somehow must be adjusted / manipulated to close in a way that benefits option writers at the time of options expiry. It is seen that 90%+ options expire out of the money. Before understanding “Options Max Pain Theory”, it is important to understand the meaning of “Options Max Pain”.
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