What is Option Pain?
In the option market, wealth transfer between option buyers and sellers is a zero-sum game. On option expiration days, the underlying stock price often moves toward a point that brings maximum loss to option buyers. This specific price, calculated based on all outstanding options in the market, is called Option Pain. Option Pain is a proxy for the stock price manipulation target by the option selling group.
How Should I Read the Option Total Chart?
Option Pain point is represented by the lowest bar in the chart. At this price, all the options in the market have the smallest dollar value.
How Should I Read the Call and Put Chart?
This chart plots the total value of calls (green) and puts (pink) separately. At a specific price point, if the call value is greater than the put value, the stock price may be manipulated below the strike price, making all call options worthless. If the put value is larger than the call value, the stock price may stop above the strike and make the put options worthless.
Why Does Optionpain.com Have One Chart WITH DATA From Yahoo! and Another from CBOE?
We make our best effort to make sure our calculations are accurate. We obtain the data from two different sources and our accuracy is verified by having the identical results from two independent calculations.
Does Option Pain Theory Really Work?
It has been observed over and over again that, near option expiration, option buyers suffer significant losses. According to a New York Times article, it is likely that option sellers, including firm proprietary traders, "manipulate stock prices by selling large numbers of shares whose prices they wanted to keep from rising and by buying other shares whose prices they wanted to support."
What Should I Do if I Hold In-The-Money Options Near Expiration?
You may want to sell the in-the-money option, call or put, one week before the final option expiration Friday. If you hold these options to the last moment, very likely you will see your options become worthless.
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