and ride the back of what they are doing, if you play the options game, and never be a buyer of options. At least at the near month. Of course, as you say, that max pain number could float around b/t now and a couple weeks from now. Buying puts in AMZN has been the biggest losing game of all. At least the options call buyer get the support of WS for AMZN the stock, such as you see in Barron's in two different places this weekend.
Yes. That's my point, sort of. Buy this book: "Option Strategies for Earnings Announcements: A Comprehensive, Empirical Analysis". Amazon has it and I highly highly recommend.
Disclosure: I did buy some $260 Feb puts for .45 on 1/30, the day AFTER earnings, when I saw the big gap up bouncing off of the 30MA from prior day. I closed out the position on Thursday at $3.95 for a 400% profit.
My point bringing this trade up is because of a particular strategy that permits me to buy some front month options for a short term swing trade. This strategy exploits a window of opportunity which is a combination of knowing how Gamma affects Delta in a near month contract, as well as implied volatility contraction AFTER earnings, followed by implied volatility expansion due to the subsequent drop AFTER the gap up. The kind of setup that AMZN had experienced last week.
The big boys play this game because they know how options work. Someone on this board a few days ago said that he did not want to believe in IV and he blamed how option was rigged. Honestly, he had no one but himself to blame.
Please note that there is a BIG difference between buying options before and after earnings even at the same strike price. I have some speculative long March and April AMZN $235 puts that I bought after earnings and they are doing pretty well due to IV expansions. My favorite hedging strategy is selling bear call spreads on SPX while holding a portfolio of stocks to maintain delta neutral, and selling Calendar spread to maintain volatility neutral. My income strategies are selling Iron Condor and selling covered calls. If I want to enter a long stock position, I sell puts. If I am bullish, I sell put spreads. If I am bearish, I sell call spreads. If I am more bearish, bullish, fear, or complacent, I sell more of something. You don't see me just buy options out right to hedge. No way! 80+% option contracts go worthless, why buy them?
Back to Max Pain. My point of price pinning has a number of factors. One of the theory is that options are not sold only buy 1 big boy. Sometimes sold by more then 1 of them who might have different strike interests. It is often a spectacular show on option expiry day seeing prices go back and forth between strikes. You'll realize that someone are playing ping pong with each other when you see it. The one with a deeper pocket will always win. This is why I have removed myself from guessing stock prices and keeping myself market neutral anymore.
"Re: hbf5: I guess the idea would be if you play options game is to mimic the "
Robot Having institionz with statistically significant control of the float like FMR - Fidelity (fido) will buy theze put optionz underwritten by retailerz will buy these thingz up in drovez when retailerz start thinking that they can 'do it like the institutionz do' and sell put optionz... Upon loading up on these trash puts, they will promtly unload their underlying sharez that they have ridden up to the moon for 4.5 yearz solid post nov 2008 and take 0 loss in the selling frenzy az they are 'hedged' by their freshly minted puts underwritten in retailer'z blood...
When will retailerz understand that fido can "see" in real time what is going on with the statistically significant portion of the float that they own the same data that takes months for a retailer to see in stale SEC reports.... Here are just a few thingz that Bot runnerz can see on their float control:
Margin leverage to the long side from their 3 rd party trade accounts for which they can extrapolate to the universe of the stock float using basic statistics and probabilities
Number of sharez loaned to their internal broker desks for shorting and the margin levelz of accounts held short for which they can extrapolate to the universe of the stock float using basic statistics and probabilities
All open interest optionz data with nano second number crunching az the set the optimal bet line valuez for option greek variable valuez.
And then to boot... Theze idiots managing the HNW client side (the real money for which FMR iz accountable by individual account ownerz and trustees) have a universe of no consequence 2030 "agressive growth" buy high baggie retirement funds that they can unload theze pigs too with one quick phone call to the manager of theze 'retirement funds' that have 0 accountability...
retailer that have at least the capacities of fmr that sybs listed above with an armada of robots programmed by the phd that got laid off from nasa and trillionz of dollarz of other peoplez money should by all meanz play optionz... If not, then they should at least recognize that they are a patsy at the card table being dealt from the bottom of the deck. Retailerz that recognize that they would indeed be an option game patsie if they played dont play (ie sybil). Onez that do recognize this and play anyway are sworn crack addicts - they have a differwnt behavioral problem that goez beyond trading options... And ones that dont know they are patsies (ala playerz that tried 3 yearz ago) are broke or will be broke as they keep hitting the optionz crack pipe...
Weekly optionz went into play 4 yearz ago, sybil tried them 2 x over that time with some small bets and immediately realized how gamed theze things were, and has been warning people since... They dont get it... Options are derivatives, and retailerz dobt have a chance unless they know how to perform liniear algebra and diff eq's, can control a few key variables with other peoples gun powder, and got A plusses in through 3 or 4 college courses of stats and probabilities at princeton or stamford, and have a MIT rocket scientist code writer input well researched and thought out algos into a bank of the fastest computers on the planet that are plugged directly into the nyse / euronext exchange to limit delay of data
Good luck though... Sybs will be routing for you from the sidelines with a bag full of shorts without a time limit.
sybil forgot to mention a very important advantage that institutions have over retailerz that dare to play against them in both the stok and particularly the timed optionz areana:
A complex communicationz network to the mass media for which to control giganic herdz of sheeples behavior to such a pervasive extreme that they can convince the public massez to buy with a smile at the very tops and sell while they are crying at the very bottoms of markets with a sense of relief that they did so - very powerful : influencing behavior.
Couple that with the fact that they have the full backing of the fed as 'too big to fail' and the surety of bring bailed out when they get it wrong without 1 cent of 'moral hazard'.
Again, unless you have all of these aformentioned capabilities and / or fully recognize that you dont then you should not play any component of the markets, particularly crack head optionz.
Dealing options iz like strapping on a suicide vest, and then posting a video on utube telling the world the date time and place (strike price) that you will blow yourself up... Even a palestinian terrorist iz smarter then that, plus they get 21 virginz in the end where you just end up broke.