Thursday, February 02, 2006
Stockz & Strategies : Shape of Max-Pain curves
Here's the latest maximum-pain options analysis courtesy of BCA software. I want to talk about the importance of the shape and curvature of the pain-curves and I need the graphs for illustration. But that stuff is all proprietary to ez-pnf - so I cant reproduce them here.
Take a look at the graph for Applied Materials (AMAT) Feb options. Even if AMAT swings wildly from 15 to 23, the value of the options change by a mere 20 million dollars which is chump change considering the market cap of AMAT.
Now look at the graph for Apple (AAPL) Feb options. For similar percentage swings in the stock price, the value of the options change by several hundred million dollars. Recall that the Max-Pain analysis calculates the closing stock price that results in the most number of options expiring worthless. Over here, options analysis is more relevant due to the larger pinning effect.
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