Option max pain calculator free
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The theory of maximum pain refers to the belief that the price of an option's underlying equity a stock or index gravitates towards the price where the greatest number of option contracts will expire worthless, as measured by their total dollar value. In this scenario, option holders feel "maximum pain," while option sellers win.
Some calculators can figure the maximum pain point for you, but you can take pen to paper and do the math yourself. Assemble the strike prices and open interest data for all of the option contracts that expire in the month for which you wish to calculate maximum pain.
Open interest differs significantly from volume. Calculate the cumulative value of the open interest of all the calls and puts for the option contract you are evaluating.
As the Optionetics website explains, "This is the value of the options that will NOT expire worthless" at a given strike price. The mathematical equation to complete this step is as follows: As you do this calculation, the value of the calls should increase and the value of the puts should decrease as the underlying equity increases in price.
Add the total dollar value of the open interest for the calls and puts together at each strike price. The smallest number you see reflects the maximum pain price.
At this price, option contract holders own options with the lowest combined dollar value, which bodes well for the parties who sold those contracts originally. How to Calculate the Initial Margin for a Short Strangle What Is the Rule for Intraday Trade?
max pain calculator | uqyhadet.web.fc2.com
How to Calculate Financial Position Equity. Step 1 Assemble the strike prices and open interest data for all of the option contracts that expire in the month for which you wish to calculate maximum pain. Maximum Pain Theory Revisited.
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