I have been trading max pain type data since 2007 after noting odd trading patterns centered around options expiry. I am a more conservative trader/investor and only take high probability trades. I prefer to know where stocks won’t be rather than guess where they will be. Trading with this mind set gives you 80% plus probability of being correct.
I have always been a stock market enthusiast. My formal training is that of informal. I am self taught, soaking up as much knowledge as can be absorbed. I love the financial industry and would work for free. I am a fundamental investor at heart and like crunching the numbers. I picked up on Max Pain theory and use option data as a main thesis in taking my positions.
In the beginning; when studying Max Pain I was truly amazed at the power it had in pulling or pushing AAPL around. I have seen the stock drop 5% out of nowhere with no news. The only news would be it was the 3rd Friday of the month. I then picked up on hitting the Max Pain strike was about 50/50 odds. Max Pain would give you a tell on what direction AAPL would start heading for expiry. I started to build a strategy from my studies. Using the Max Pain strike is not really tradable, good to know, but not tradable. So I started to study open interest (OI) and its affect on AAPL. Long story short, I have altered the original Max Pain theory and morphed it into what my own studies have concluded. I call this OI/Max Pain, it uses open interest and a range. This way it is tradable as I now have a high probability range. It doesn’t stop there, using OI will tell you so much more. How a stock reacts at each strike depending on the amount of OI is a major tell.
Conclusion: When using open interest you can accomplish multiple things. We can use it for OI/Max Pain when AAPL is stuck in a range and we can use it for catching breakouts, breakdowns, buy and sell points. Enjoy.
I want to give a special thanks to some of my early influences: Turley Muller, Andy Zaky and Jason Schwarz. I thank Philip Elmer-Dewitt for his coverage on AAPL and letting us have a voice, Horace Dediu for his tireless studies and anyone attached to the AAPL community.
I developed my own trading system, based on magnetism (physics) and velocity vectors...I find the center of the compression, and factor time with volume which determines the outward velocity vector (linear expansion) thereby predicting price and time.
I have a market update service
I've been in the markets since 1984
I have been an active investor for almost 20 years. My main focus is on high-yield stocks, particularly MLPs, and high-growth oil companies in the Eagle Ford shale. I have a portion of my portfolio allocated to short-term trading, with a focus on over-reactions to company news and directional plays on VIX-based ETFs. I am happy to answer just about any question sent my way, especially from those new to the stock market.
Co-Founder of VolatilityAnalytics.com, a proprietary volatility strategies firm. Using creative historical volatility analysis, we are able to provide actionable strategies for hedging, trading volatility, and finding value in today's turbulent markets.
Our proprietary strategies utilize derivatives based exchange-traded products, VIX related derivatives, and options analysis. We have analytics for both retail and institutional investors.
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I am a market enthusiast and part-time trader. I started writing for Seeking Alpha in 2011, and it has been a tremendous opportunity and learning experience. I have been interested in the markets since elementary school, and hope to pursue a career in the investment management industry. I have been active in the markets for several years, and am primarily focused on long/short equities.
I hold a Bachelor of Science Degree from Lehigh University, where I double majored in Finance and Accounting, with a minor in History. My major track focused on Investments and Financial Analysis. While at Lehigh, I was the Head Portfolio Manager of the Investment Management Group, a student group that manages three portfolios, one long/short and two long only. I have had two internships, one a summer internship at a large bank, and another helping to manage the Lehigh University Endowment for nearly a year.
Disclaimer: Bill reminds investors to always due their own due diligence on any investment, and to consult their own financial adviser or representative when necessary. Any material provided is intended as general information only, and should not be considered or relied upon as a formal investment recommendation.