This finance website calculates the weekly and monthly max pain
cash value for stocks. Max Pain theory states that the stock price
on option expiration will be at the strike where the most options
(by cash value) expire worthless. This is due to hedging activity
by the option writers. Thus, you can predict where the stock price
will be in the future and trade accordingly.
It is a few weeks after the AAPL split and how do the AAPL
options look? Well, the open interest is quite varied. In short, it
probably needs a few more weeks to settle. The 6/27 expiration saw
open interest around the 300,000 call contracts. But the monthly
6/21 expiration had 1,600,000 call open contracts. AAPL appears so
far to be maintaining enough open contracts to make max pain a
The interesting question is if NFLX, PCLN and GOOG don't have
the open interest AAPL does, are they other stocks thats do? BAC,
CBS, MU and YHOO all have open interest of 50,000 contracts or more
for the 6/27 or 7/3 expiration dates. None of them have over
100,000 open contracts, much less the 300,000 AAPL had for 6/27
Apple stock will split 7 shares for 1 over the weekend of June
7, 2014. Apple is the poster child for max pain theory.
What does the stock split for max pain?
Apple is the poster child for max pain theory due to the large
number of option contracts traded. Consider the following
chart that shows the call option open interest in both weekly and
monthly options from late April 2014 to early June 2014.
Apple is the blue line, GOOG is the purple line,
and NetFlix (NFLX) and Priceline (PCLN) are red and green
respectively. I choose to compare these stock because they
are all high profile tech stocks with a steep share
The chart shows the sum of all call option contracts from 5 days
before expiration to expiration. Then the next week
May 17 was the monthly option expiration and thus there is an
increase in open contracts.
A quick glance shows Apple averages 80,000 contracts over this
period. NFLX and PCLN average about 20,000. Apple
trades 4 times more options than the other stocks.
More options traded means a large hedge in the stock by the
option writers. The larger the hedge, the larger the effect
on the the stock price.
The question is what happens to the number of AAPL options
traded after the split? If there is a drop in the number of
options traded, the max pain effect should lessen. This would
be bad news for both max pain theory and the poormans
show the data
Ever notice how AAPL almost always closes higher on Mondays?
Take a look at the Friday and Monday closes from February to mid
May of 2014.
I have to give credit to Travis Sago at aaplpain.com
for pointing this out. Travis goes on to propose a theory as to why
AAPL behaves this way. It can be summarized as the tail (weekly
options) wagging the dog (stock price).
Weekly options are generally opened at the beginning of the
week. For AAPL the pattern indicates that is Monday. Consider the
following chain of events.
Then consider this chain of events on Friday.
This is very similar to max pain theory. Both rely on the MM
buying and selling stock to offset an option position. It is
important to note that more call options are purchased every week
compared to put options. This means the overall option position of
the MM is short.
The reason Travis focuses on AAPL is because it trades more
weekly options than any other stock.
What does this mean for you? It simply means you can buy AAPL at
the close on Friday and sell AAPL at the close on Monday and
statistically have more gains than losses. It also means tht you
are holding AAPL for a very short amount of time and thus reduce
A great number of people have asked about the historical max
pain values. Recent;y this website has begun recording the daily
AAPL max pain values and comparing them with the daily stock
Currently, only AAPL stock has this historical max pain data.
Why? The data for this website is gathered on demand from Yahoo
finance. This means no one requests the max pain value for a
particular stock one day, then there would be no value to record.
Second, there are storage space concerns when attepting to store
such data for every stock ticker.
I choose AAPL stock because it is the poster child for max pain.
AAPL trades more options than any other stock. More option
contracts means more common stock bought as a hedge by the option
writer. A larger hedge has more effect on the stock price when it
That said, how is AAPL doing? Here is the chart for mid March to
mid April. The unbroken gray line is the stock price. The broken
blue line indicates the max pain for that week.
On Friday 3/21/2014, Firday 3/28/2014 and Friday 4/18/2014 max
pain was correct. On Friday 4/4/2014 and Friday 4/11/2014 it was
incorrect. The week of 4/4/2014 was the week where the Russian and
Ukraine conflict arose, driving down stocks Thursday and
The VIX option max pain data is now available. Several
users have emailed us asking for the VIX option data. If you
are one of them, you'll pleased that the data is finally here.
Use the ticker symbol ^VIX to get the
data. It will default to the next monthly maturity date, but
you will have the ability to select any available maturity.
The VIX is not a stock, but a derived value of the current
market volatility. Therefore the max pain value itself may
not be useful. Buying or selling the VIX or VIX options
doesn't affect the market volatility. So hedging won't affect
But, the open interest is certaintly valuable. The sheer
number of open contracts is amazing. For example, here is the
4/16/2014 maturity open interest.
There are a large number of stikes that have over 150,000 open
contracts. That volume even puts AAPL options to shame.
The AAPL April monthy maturity has one strike with 40,000 calls and
one with 40,000 puts. The rest are peanuts. So even
that 590 strike at 80,000 open contracts is just half of the
options open on just one VIX strike. What does that
mean? It means there's an awful lot of money tied up in VIX
Plus, consider how many more calls are open than puts. The
put-call ratio is 0.40. Many investors believe market
volatility will go up. Most of the calls are between the 17
and 25 strikes. There is also a large number of 30 strike
The February 2014 monthly options expired on Friday 02/21. The
closing stock price on Friday was 525.25. The max pain value was
535. Did max pain miss? Yes. But in my opinion it still provided a
direction for AAPL.
Max pain is based on the MM rebalancing positions opened to
counter option contracts they had to write in order to make a
market. This takes effect during the last week of the option
contract. So, what happened during that last week?
We can see the history on Yahoo Finance
First, max pain predicted a drop in the price. On Friday 2/14
the stock closed at $543.99 and max pain was at $532.50.
Furthermore, max pain continued to be below the stock price until
the end of the day on Wednesday. Before the open on Thursday max
pain was at $537.50 and the stock had closed at $537.37. This is a
13 cents difference.
A short position would have been the correct trade in AAPL for
week. So while max pain failed to get the value exactly, it did
indicate a downtreand.
The open interest indicated a close below $540? Take a look at
the open interest graph.
AAPL had a large number of call contracts open at $540 (and also
$550). Had AAPL closed above $540, all of those contracts would
have been in the money. The MM would have to pay on all those
calls. Max pain theory says hedging by the MM against that would
apply pressure to keep the stock below $540.
This is very much what Travis Lewis advocates. He uses the
highest call and put OI as a range of highly probable close values.
I believe he indicates that he will sell calls beyond that and
collect the premium when they expire worthless. In this case, he
could have sold the $545 calls.
Friday is the January 10, 2014 weekly option expiration.
Max pain as of Thurday morning is 545. AAPL Stock is due to
close Thursday at about 536-537. That is a significant
difference. Let's paper trade this max pain value.
Unemployment numbers are out tomorrow. It is a situation
where a good number will be taken as a sign of stepping up the QE3
taper. A bad unemployment number would mean the FED continues
tapering at their current schedule. This report could sway
stocks big in either direction. Max pain works best in the
absence of other factors, so bear that in mind.
I am going to use a bull call spread. With the weekly
Op Ex tomorrow time decay will take a big bite otherwise. By
using the spread I neutralize the time decay.
The bull call spread for the 535-540 strike is a cost 2.7 in
premium. I will buy the 535 weekly calls. I will sell
the 540 weekly calls. If I invest $1,080 I can buy 4 spread
contracts. The break even point is 537.70. Assuming
both strikes are in the money at the close tomorrow, I will get
85.19% ROI. The profit would be 2.3 per contract. In
cash that is $920.
Of course, I could also trade the 540-545 strike. The
break even is a 540.93 stock price and the ROI is 437.63%.
But in case AAPL doesn't get to 545 and pins at 540 instead, I will
stay with the 535-540 spread
I'll come back at the close Friday and update the status of this
UPDATE FRIDAY 1/10
AAPL closed at 532.94. Both strikes are out-of-the-money,
so the position was a 100% loss.
The Unemployment number was bad this morning. It seems
that held influence on the markets all day. Max pain works
best when there is no other news driving stock price
this morning I posted the AAPL option max pain for the weekly Jan.
Pete O. replied to me, saying he would like to see a 515 stock
price as an entry point
The advice I gave Pete O was sell put options for the Jan. 10
expiration at the 515 strike. There are two possible outcomes from
One, the stock goes to 515 or lower. The option exercises and
Pete O. must buy AAPL stock at 515, which is the entry price he
wanted. Plus, he already collected the option premium
slightly reducing the cost of buying the stock.
Two, the stock price never reaches 515. The put options Pete O.
wrote expire worthless. Pete keeps the premium he collected as
If you identify a weekly strike price that you would like as an
entry point to establish a long position, selling or writing puts
is a strategy you can use. If Pete O. truly wants to
establish a long, he can try selling puts the following week until
he gets the long position he wanted.
On Thanksgiving 2013 this website will begin tweeting the weekly
max pain. You can follow us and get the weekly AAPL max pain
The purpose of the twitter account is to assist users like you
get the max pain value each day. The tweets themselves will
contain the weekly option max pain and the previous closing stock
price. It also includes the option expiration date. The
message itself will look like this.
Max Pain = 520.00. Maturity = 11/29/2013. Previous close =
You can see the recent tweets displayed on this page. Look over
to the blog navigation pane.
This website uses Yahoo Finance data to get the option open
interest. This data is posted prior to the market open each
day. The max pain value can be calculated before the market
open each day. Then, it is posted to twitter before the
market open each day.
For now, only the AAPL max pain is tweeted. It is possible
to tweet other stocks like GOOG or PLCN or NFLX. But first
we'd like to see what the response to tweeting the AAPL stock
is. Many visitors to this website own or are considering
buying AAPL stock. Apple is the most viewed stock on this
website. In addition, does it make sense to tweet all stocks
under the same account? Or would it better to establish an
account for each individual stock and let you follow only the
stocks you want to? The second option sounds good, but there
is the problem of managing multiple twitter accounts.
What do you think? Would you like to see various stock max
pain values? If so, what ticker symbols? Furthermore
would you like to see individual accounts for each stock?