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  • redchopper2003 redchopper2003 Mar 25, 2006 2:54 PM Flag

    Has Speculation Begun?

    Can you explain this in laymen's terms?
    I read it twice and don't get it.
    Thanks in advance.

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    • That was layman terms. This is hard to understand because it is eigth grade math and we are all overeducated.

      Everybody "knows" option buyers and sellers haven't got a clue.

      If you can find the price of the stock where the most options are bought and sold, chances are, irony has it two thirds of the time, that price is price of the stock at option expiration.

      Look at the options for April, puts and calls.
      on the yahoo page.

      The one with the most outstanding puts and calls for April is the price 35. Just add them together for each price level puts and calls, and the 35's have the most outstanding options in number.

      That is where most of the market will be betting the stock is higher, or lower.

      Since they are BOTH wrong, the point at which the most options are sold, is called MAX PAIN, the point at which options both puts and calls expires WORTHLESS about 75-90% of the time.

      That number for April is 35.

      a positive bias in the stock leads you to believe somewhere between 35 and the next option price of 40, a negative about 30.

      This stock has a positive bias.

      The stock is probably going to close upwards nearer to 40 than 30.

      38.33 is about right. The April 35 will close at about three fifty, and the put will close worthless.

      So if you buy at 38 on Monday, and sell the right to own the stock at 35 for 6 bucks due third week April, you should make about 35% fully leveraged in a margin account where you only have to put up about 35%.

13.90+0.19(+1.39%)Aug 25 4:00 PMEDT